Alert November 13, 2012

Alabama Federal Court Dismisses Truth in Lending Class Action

The United States District Court for the Southern District of Alabama granted defendant’s, a mortgage servicer, motion for summary judgment in a class action in which plaintiff, a mortgagee, alleged violations of the Truth in Lending Act’s notice requirements.

 Plaintiff executed a promissory note secured by a mortgage for real property; the legal title to the mortgage was held by Mortgage Electronic Registrations Systems, Inc. Plaintiff’s loan was subsequently sold to Fannie Mae. After plaintiff defaulted on her loan, MERS assigned the mortgage to defendant so that defendant could conduct a foreclosure in its own name, in accordance with Fannie Mae Guidelines. Plaintiff initiated an action alleging that defendant violated the TILA by failing to provide her with a notice of transfer of ownership. Defendant moved for summary judgment, arguing that the assignment of mortgage from MERS fell within the TILA’s safe harbor provision, which provides that a servicer is not treated as the owner of an obligation “on the basis of an assignment of obligation from the creditor or another assignee to the servicer solely for the administrative convenience of the servicer in servicing the obligation.”

 Relying on Reed v. Chase Home Finance, LLC, --- F.Supp. 2d ---, 2012 WL 4381473 (S.D. Ala. Sept. 26, 2012), the Court found that an assignment will be deemed “for the administrative convenience of defendant” where (1) the assignment assisted the defendant in performing its duties as a servicer, and (2) the purpose of the assignment was for such assistance. Since the assignment of mortgage was required for defendant to foreclose in its own name, the Court determined the standard was met. The Court also rejected plaintiff’s argument that Fannie Mae’s benefit from the assignment—the avoidance of transfer taxes—did not mean the transfer was not for defendant’s administrative convenience.