By Michael T. Fraser, Associate, Saxon, Gilmore, Carraway & Gibbons, P.A.
Two recent Eleventh Circuit decisions have held that not all mortgage assignments must be disclosed to borrowers by loan servicers. A loan servicer is not required to disclose to a borrower the assignment of a mortgage when the assignment was made to allow the servicer to foreclose on the property. See Reed v. Chase Home Finance, LLC, —F.3d— 2013 WL 3868079 (11th Cir. July 29, 2013) and Giles v. Wells Fargo Bank, N.A., 2013 WL 2257131 (11th Cir. May 23, 2013). The issue in both cases was whether the assignments, both held by the Mortgage Electronic Registration Systems (“MERS”), triggered the Truth in Lending Act’s (“TILA”) requirement to disclose, under 15 U.S.C. § 1641(g), that the servicers were new owners of the debt. The servicers argued that they had no duty to the borrowers to disclose the assignments because 15 U.S.C. § 1641(f) provides that disclosure of a transfer of interest in a debt to a servicer is unnecessary where the transfer was made for “administrative convenience.” The borrowers countered that to interpret “administrative convenience” in such a way would be to, as the Reed plaintiffs stated, make section 1641(g) a “toothless” provision under TILA.
The term “administrative convenience” is not defined under TILA and, therefore, to resolve the issue, both courts resorted to interpreting the term pursuant to its ordinary meaning, as defined in the dictionary. To that end, the courts determined that “administrative convenience” effectively means any acts which allow someone to perform a managerial function. The courts held in both cases that because the ability to foreclose property is an integral function of a servicer’s management in servicing loans, an assignment of mortgage in aid of that function constituted an “administrative convenience” under TILA. Accordingly, the Eleventh Circuit affirmed the district courts’ grants of the servicers’ motions for summary judgment.
Following Reed and Giles, creditors should breathe a little easier knowing that they are not burdened with having to report to every defaulting borrower the occurrence of a mortgage assignment that was made for the purpose of foreclosing on the subject property. That foreclosing a mortgage is an expressly authorized “administrative convenience,” i.e., a function of the ordinary management of loan servicing, means that creditors should be saved both the time and expense of disclosing to borrowers a transaction that was effected in order to actually perform the foreclosure. However, practically speaking, creditors should be cautioned that simply because they should ultimately prevail on summary judgment in cases similar to these, it does not mean that a borrower will not raise the issue in the foreclosure action, which a creditor might want to avoid by disclosing the assignment, even though it is not required under TILA.
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