Based upon a recent decision of the SJC, a successor lender, as assignee of the lender that originated a mortgage loan, may be liable for the originating lender’s unconscionable acts, although a mere servicer of the loan may not be liable absent a showing that the servicer was an assignee of the loan.
In Drakopoulos v. U.S. Bank, Nat’l Ass’n, 465 Mass. 775 (2013), the SJC considered whether (a) a lender, by virtue of its status as assignee of a residential mortgage, or (b) a loan servicer could be liable for violations by the loan originator of the Consumer Protection Act, the Predatory Home Loan Practices Act, or the Borrower’s Interest Act. In Drakopoulos, the residential borrowers defaulted on a loan with monthly payments approximately $600 greater than the borrowers’ total monthly income. The loan was subsequently transferred into a securitized pool of loans and the successor lender foreclosed on the mortgage.
The alleged predatory lending practices in Drakopolous included the lender’s processing of the loan as a 10.315% fixed interest rate stated income loan (notwithstanding its receipt of documentation of the borrowers’ income), the borrowers’ unawareness that their household income was inflated on the loan application, and the lack of a condition requiring the borrowers to demonstrate their ability to make mortgage payments that would be more than 150% greater than their current payment. The SJC applied common law principles of assignee liability to the contractual defense of unconscionability, noting that a mortgage that is unconscionable, and therefore unenforceable, does not become enforceable merely because it is assigned. The SJC reversed the Superior Court’s summary judgment decision in favor of the foreclosing lender on all claims, stating that the foreclosing lender’s status as an assignee did not automatically shield it from liability for acts of the originating lender, remanding the case back to the Superior Court for further action. As to the servicer, however, the SJC affirmed summary judgment in favor of the servicer, stating that the servicer was not shown to be an assignee and that there was no alternative theory for its liability.
Overall, this case highlights that long-standing principles of assignee liability will apply to a lender who assumes a loan, even when the originating lender engaged in alleged predatory lending practices.