In a recent opinion, the U.S. Court of Appeals for the Fifth Circuit recently confirmed that an original mortgage lender cannot be held vicariously liable for violations of the Real Estate Settlement Procedures Act (“RESPA”) regulations pertaining to loss mitigation allegedly committed by a loan servicer.
In defense to a Texas judicial foreclosure action, the mortgagor filed a third–party complaint against the lender that had originated her mortgage loan. The mortgagor asserted violations arising from 12 C.F.R. 1024.41, a RESPA regulation which, among other things, requires a mortgage loan servicer to consider a mortgagor’s complete and timely loss mitigation application and then notify the mortgagor of any loss mitigation options available to avoid foreclosure.
The original lender filed a motion to dismiss the mortgagor’s third–party complaint. The district court agreed with the lender and dismissed it.
Granting an interlocutory appeal filed by the mortgagor, the Fifth Circuit affirmed the dismissal. It explained that because the text of 12 C.F.R. 1024.41 only imposed obligations on the loan servicer and not the lender, the statutory text “plainly and unambiguously shields” a lender from “any liability created by the alleged RESPA violations of its loan servicer.” The mortgagor could not circumvent this by alleging, for example, that the loan servicer was acting as the agent for the lender and therefore should be subject to vicarious liability.
This opinion, which appears to be the first from a U.S. appellate court on this issue, is a win for mortgage lenders in that it succinctly limits their potential liability under RESPA’s loss mitigation regulations.