Alert August 06, 2013

Loan Servicer Exempt from TILA Assignment Disclosure Requirements

The United States Court of Appeals for the Eleventh Circuit held that an assignment of mortgage from MERS to a servicer, which allowed the servicer to commence foreclosure proceedings, was for the “administrative convenience of the servicer in servicing the obligation.” As a result, the servicer was exempt from the disclosure requirements under the TILA, which would have otherwise required the servicer to provide written notification of the transfer within 30 days of the assignment. Plaintiffs, borrowers facing foreclosure, filed a class action against defendant, a mortgage servicer, alleging that defendant failed to inform plaintiffs that it had been assigned an interest in their mortgage in violation of the Truth in Lending Act. The lower court granted defendant’s summary judgment motion holding that as a servicer, defendant was exempt from such disclosure requirements under TILA. Plaintiffs appealed.

In reaching its holding, the Court relied on the Merriam-Webster Online Dictionary to define “administrative convenience” as “that which allows performance of a managerial action or requirement.” The “administrative convenience” exception is triggered if the servicer was assigned the obligation “solely for the administrative convenience of the servicer in servicing the obligation.” Since defendant would not have been able to foreclose on the mortgage without the assignment of mortgage, the Court concluded the assignment was an “administrative convenience” within the meaning of TILA, and affirmed the lower court’s dismissal of the class action. This is the second such case in which the Eleventh Circuit has found in favor of a servicer advancing the “administrative convenience” exception under TILA (see May 28, 2013 Alert).