Tuesday, May 21, 2013

Lack Of Contract Privity Between Mortgage Servicer, Borrower Sinks Homeowner's Claim Under Ohio Consumer Protection Law; Court Ruling Kiboshes Use Of Attorney Fee-Shifting Statute Against 3rd Party Banksters

In Columbus, Ohio, The Columbus Dispatch reports:

  • The Ohio Supreme Court has ruled that servicing a residential mortgage does not constitute a “consumer transaction” as defined by state law, a ruling that consumer groups and attorneys say eliminates a protection for homeowners trying to save their homes amid the housing collapse.

    The ruling stems from a lawsuit filed by a Norwalk homeowner against Barclay’s Capital Real Estate in U.S. District Court in Toledo.

    The homeowner, Sondra Anderson, alleged that Barclay’s, which operated the mortgage-servicing business under the name HomEq before selling it three years ago, had not applied her mortgage payments correctly. As a result, she was stuck with hundreds of dollars worth of fees that it has yet to account for, despite her attempts to obtain more information, said her attorney, John Murray of Sandusky. He said Anderson is up to date with her mortgage payments.

    The federal court asked the Supreme Court for clarification of the situation in the context of the Ohio Consumer Sales Practices Act, which generally prohibits unfair or deceptive acts in consumer transactions. It is common for federal courts to ask for guidance from the Supreme Court on questions of state law.

    The court, in a 5-2 ruling written by Chief Justice Maureen O’Connor, effectively determined that the interaction between the servicer and the homeowner is not a consumer transaction. Mortgage-servicing companies act as an agent for the lender by collecting payments, late fees and other assessments and handling day-to-day interactions between lenders and their customers.

    “Mortgage servicing is a contractual agreement between the mortgage servicer and the financial institution that owns both the note and mortgage,” she wrote. “Mortgage servicing is carried out in the absence of a contract between the borrower and the mortgage servicer.”

    O’Connor acknowledged that the servicer’s duties may involve interactions with borrowers and may even help them modify their loans, but the company does that on behalf of the financial institution.

    In his dissent, Justice William O’Neill said dealings between consumers and mortgage servicers should not be exempt from the law.

    Given the foregoing history of protecting consumers when they are forced into the hands of third-party debt collectors, it is wholly appropriate to also protect residential-mortgage-loan borrowers when they are forced into the hands of mortgage-loan servicers,” he said.

    The issue of whether the state’s consumer-protection law applies in these relationships was important because the law would have allowed consumers the possibility of recovering attorney fees along with damages, attorneys say.

    A lot of homeowners in foreclosure don’t have the money to pay the attorneys to represent them,” said Linda Cook, senior staff attorney for the Ohio Poverty Law Center. “Legal-aid resources are limited ... so having fee-shifting statutes in consumer sales practices actions level the playing field.”

    Cook disagreed with the ruling, saying mortgage servicers “are the middlemen, and most of the time that’s the only entity that homeowners deal with once the loan is closed.”

    Murray said the problems Anderson has been facing are industry-wide. “It’s unfortunate for consumers to not have this protection,” he said. Murray said the ruling will not stop the lawsuit that he expects ultimately will include tens of thousands of homeowners.

    Attorney General Mike DeWine’s office, which also asked the court to rule on Anderson’s behalf, said it, too, was disappointed in the court’s ruling.

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