Runkle v. Federal National Mortgage Ass'n

Citations: 905 F. Supp. 2d 1326; 2012 WL 5861803; 2012 U.S. Dist. LEXIS 168358Docket: Case No. 12-61247-CIV

Court: District Court, S.D. Florida; November 15, 2012; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The Court partially granted the Defendant’s Motion to Dismiss in the case brought by Plaintiff David Runkle against the Federal National Mortgage Association (Fannie Mae) for alleged violations of the Truth in Lending Act (TILA). Runkle, who had a mortgage assigned to Fannie Mae and serviced by Seterus, Inc., initiated the lawsuit after Fannie Mae began foreclosure proceedings on his home. Runkle claimed he was misled and sought clarity on the ownership of his loan through a written request to Seterus, asking for the owner’s details. Seterus identified itself as the servicer and Fannie Mae as the owner but failed to provide Fannie Mae’s contact information, which Runkle argued violated TILA's requirement for the servicer to disclose the owner's name, address, and phone number upon request. Runkle contended that Seterus' lack of clear identification as the master servicer and the incomplete response constituted a TILA violation for which Fannie Mae should be held liable. The Court, applying the standard of review for motions to dismiss, considered Runkle's nonconclusory allegations as true for the Order's purposes, without making any findings of fact.

Runkle's second cause of action against Seterus stems from Seterus’ failure to provide a requested payoff statement, which included an itemized total needed to reinstate the mortgage. Runkle argues that under Regulation Z, specifically 12 C.F.R. 226.36(c)(1)(iii), Seterus was required to provide an accurate statement of the outstanding balance necessary to satisfy the mortgage obligation. This non-compliance allegedly violates 15 U.S.C. 1639(Z)(2) of the Truth in Lending Act (TILA).

In the discussion of Count I, Fannie Mae contends that as an assignee of the loan, it cannot be held liable for violations committed by its servicer, Seterus, under 1641(f)(2). However, the court acknowledges that assignees can be liable for servicer violations, referencing case law such as Khan v. Bank of New York Mellon. The court ultimately finds that Seterus did not violate 1641(f)(2) despite failing to provide Fannie Mae's contact information. Runkle’s request specified information about either the owner or master servicer, and Seterus identified itself as the servicer while confirming Fannie Mae had contracted with it for loan management.

Fannie Mae argues that TILA does not require "magic language" for disclosures and emphasizes the principle of "meaningful disclosure" of credit issues. TILA permits some flexibility in terminology. The court highlights that a violation of TILA, regardless of its technical nature, mandates liability. Fannie Mae asserts Seterus adequately disclosed its role, which hinges on the definition of "master servicer" provided by RESPA regulations. A master servicer is characterized as the entity owning the servicing rights, which may be performed directly or through a subservicer. Since Seterus disclosed its contractual relationship with Fannie Mae, it indicated that it was acting as the master servicer, not as a subservicer. Thus, Runkle could reasonably conclude that Seterus was the master servicer due to the direct contract, negating the possibility of Seterus acting on behalf of an undisclosed master servicer.

Seterus informed Runkle that it had a direct servicing contract with the loan's assignee and identified itself as the master servicer, thus complying with 12 U.S.C. § 1641(f)(2) and failing to violate it. Runkle's claim was dismissed as two other cases (Stephenson v. Chase Home Fin. LLC and In re Meyer) involved servicers that provided insufficient information, unlike Seterus, which clarified its role and relationship with the loan owner, leaving no ambiguity. Consequently, Fannie Mae's motion to dismiss Count I was granted with prejudice.

Regarding the failure to provide a payoff amount under Regulation Z (12 C.F.R. § 226.36(c)(1)(iii)), there was a dispute over Runkle's right to sue and Fannie Mae's responsibility for Seterus' actions. Fannie Mae contended that Runkle did not properly request a payoff statement, arguing that Seterus had no obligation to respond because Runkle's request was not explicitly aligned with the regulation. The Court countered that the request, though not perfectly phrased, was sufficient to invoke Seterus' duty to respond, emphasizing the consumer protection intent of TILA and the liberality of its construction. The Court recognized the need to assess Runkle's potential cause of action under TILA and Regulation Z, which prohibits certain acts in connection with credit secured by a dwelling.

Section 226.36(c)(1)(iii) of TILA mandates that servicers must inform debtors of the total outstanding balance required to pay off their obligations by a specified date. Runkle is entitled to request this accurate payoff statement, placing an obligation on Seterus to respond. Runkle's legal basis for action is found in 15 U.S.C. 1639(i)(2), which empowers the Bureau to prohibit unfair or deceptive practices related to mortgage loans. Violations of Section 226.36(c) have been recognized as unfair by regulatory guidance, yet some courts have expressed skepticism about the applicability of Section 1639 to claims based on 226.36(c). For instance, Judge Ryskamp dismissed a claim due to a belief that Section 1639 only concerns high-cost mortgages, while other cases have rejected this narrow interpretation. Judge Ungaro doubted the existence of a private right of action under Regulation Z.

Despite these uncertainties, the Court concludes that TILA allows for private lawsuits over violations of Section 226.36(c), supported by TILA Section 1640’s provisions for civil liability against creditors who fail to comply with its requirements. The Court reasons that the Bureau's prohibition against withholding payoff statements establishes a requirement under TILA, thus enabling creditor liability for non-compliance.

The document also discusses whether Fannie Mae can be held liable for its servicer's TILA violations. Fannie Mae argues it is merely an assignee and thus not liable. The Court reviews precedent on vicarious liability, noting a previous case (Khan v. Bank of New York Mellon) where it found creditors liable for their servicer's violations. The TILA amendments permit actions against creditors for servicer violations, supporting a consumer-friendly interpretation that favors accountability for creditors, including Fannie Mae, for their servicer's actions.

The Court rejected a previous ruling from Holcomb v. Fed. Home Loan Mort. Corp. and affirmed that creditors can be liable for their servicer's violations under TILA, specifically referencing section 1641(f)(2). Runkle, the plaintiff, shifted his argument to assert that Fannie Mae is an "assignee" rather than a "creditor," prompting the Court to examine the liability of an assignee for its servicer's TILA violations. The Court concluded that assignees should be treated similarly to creditors under TILA, as the distinction between the two is minimal—creditors originate loans while assignees acquire ownership without origination.

The Court emphasized that TILA violations often occur after loan origination, making the originator-assignee distinction irrelevant for liability purposes. It argued that if creditors are liable for negligent servicers, assignees should also be held accountable, as servicers act as agents for both parties in ensuring timely loan payments. The Court asserted that assignees cannot escape liability, especially since the assignor is typically no longer involved after assignment.

Furthermore, the Court addressed Fannie Mae's argument that liability is limited to pre-assignment TILA violations, clarifying that such a limitation would allow assignees to avoid responsibility for post-assignment errors. The Court aligned with other district courts, such as Rinegard-Guirma v. Bank of America NA, supporting the imposition of vicarious liability for assignees regarding TILA violations by their servicers. The Court noted that for an assignee to be held liable, the TILA violation must be "apparent on the face of the disclosure statement," and highlighted that no payoff statement was provided in Seterus’ response, which could indicate a violation.

A servicer’s failure to inform a borrower about the loan owner, violating 15 U.S.C. § 1641(f)(2), is not a defect immediately apparent from a disclosure statement, as the servicer's role starts post-disclosure. The court determined that excluding assignee liability under the Truth in Lending Act (TILA) contradicts Congressional intent behind the 2009 TILA amendment, other TILA provisions, and existing case law which allows for assignees' liability for servicer violations. It referenced **Khan**, acknowledging that assignees can be held liable for nondisclosure, and highlighted the distinction between horizontal liability under § 1641(a) and vertical liability under § 1641(f)(2). The court emphasized that assignees, akin to creditors, should be accountable for the actions of their servicers, promoting proper disclosure.

In the case at hand, Runkle does not have a valid claim against TILA for the servicer's nondisclosure under § 1641(f)(2) since Seterus provided adequate information about its role as master servicer. However, Runkle has a legitimate claim against Fannie Mae for Seterus' refusal to furnish a payoff statement, illustrating that a private cause of action exists despite the lack of precise terminology in his request. The court granted the defendant’s motion to dismiss in part, dismissing Count I with prejudice while allowing Count II to proceed. The court's ruling is narrow, contingent on Seterus' clear identification as the master servicer, and acknowledges differing opinions among courts regarding this interpretation, yet maintains adherence to the precedent established in **Khan** in the absence of contrary authority.