Insights

Although the housing market crash occurred nearly five years ago, the resolution of the legal matters arising from the crisis is still in its infancy. Opportunistic members of the plaintiffs bar continue to explore the nooks and crannies of federal and state laws for ways to get their clients relief (and themselves a quick buck). Fortunately for the industry, the courts have scrutinized the validity of these claims. The affirmation of an important servicer exemption from certain Truth in Lending Act requirements is just another example of this.

Lakisha Giles took out a home loan from America South Mortgage Corp., secured by a mortgage on her property. The mortgage identified American South as the lender and MERS as the beneficiary of the security interest. After origination, the loan was bought by Fannie Mae. The servicing rights were transferred to Wells Fargo Bank, N.A. and Wells Fargo notified Giles of the transfer. Wells also held the physical note at this time in a custodial capacity pursuant to the Fannie Mae Guidelines. Giles eventually defaulted on her loan payments and Wells Fargo sent Giles a notice of acceleration. MERS then assigned all of its right, title, and interest in the mortgage to Wells Fargo. Wells Fargo continued with the foreclosure and Fannie Mae bought the property at the foreclosure sale.

After the sale, Giles sued Wells Fargo in federal court in Alabama for violation of TILA. She alleged that Wells Fargo had failed to provide her notice of the transfer of ownership of the mortgage loan as required by section 1641(g) of TILA. TILA requires that covered persons provide notice to borrowers when the ownership interest in their mortgage loan is transferred. A covered person is basically any person that becomes the owner of a mortgage loan. However, there is an exemption from these TILA requirements for a mortgage servicer if the servicer holds title to the loan “solely for administrative convenience.”

At the district court, both parties moved for summary judgment. Giles argued that Wells Fargo was the owner of the loan because when MERS assigned the mortgage to Wells Fargo it also transferred ownership of the loan. Therefore, Giles reasoned, Wells Fargo violated TILA by failing to send Giles notice of the ownership transfer. Wells countered it was not a covered person because it never actually owned the loan The court held that there were insufficient facts to support a finding other than that Wells Fargo was the owner of the loan. However, the court held that MERS’s assignment of the mortgage to Wells Fargo was solely for administrative convenience. Thus, although Wells Fargo could be considered a covered person, it qualified for the servicer exception and so was not required to give notice under TILA. The court duly granted Wells Fargo’s motion for summary judgment.

Servicers have found themselves facing suits for violation of a slew of laws and this decision’s application of the “solely for administrative convenience” exception under TILA is comforting. Although it would have been greater comfort had the court clearly determined that Wells Fargo was not the owner of the loan when Wells held the loan strictly in a custodial capacity, it is still a favorable decision.

Giles v. Wells Fargo Bank, N.A., 2012 U.S. Dist. LEXIS 131313 (S.D. Ala. September 14, 2012).

Peter L. Cockrell is an associate of Hudson Cook, LLP, in the firm’s Hanover, Maryland office. Peter can be reached at 410.865.5418 or by email at pcockrell@hudco.com.