The Fifth Circuit in Riddle v. Bank of America, N.A., 911 F.3d 799 (5th Cir. Dec. 21, 2018) affirmed a Texas district court’s ruling that a homeowner failed to plead an agency relationship between a bank and its servicer, and thus failed to state a claim that the bank was vicariously liable for the servicer’s alleged violations of the RESPA. The Fifth Circuit then went a step further, noting that even if the bank had an agency relationship with the loan servicer, as a matter of law the bank could not be held vicariously liable for the alleged RESPA violations of the servicer.
In Riddle, the assignee of a home equity loan filed foreclosure against the homeowner alleging a default in payments. The homeowner brought counterclaims against the assignee and a third-party complaint against the original bank with which the homeowner had taken out the loan and its loan servicer, alleging that the bank was vicariously liable for the failure of its loan servicer to comply with RESPA. However, the homeowner did not plead there was an agency relationship between the bank and loan servicer which is an essential element of vicarious liability. For this reason, the district court granted the bank’s motion to dismiss.
On appeal, the Fifth Circuit noted, “[t]his is an issue of first impression in our circuit, and we are apparently the first circuit court to address it.” By its plain terms, RESPA imposes certain duties only on servicers. A servicer’s obligation to follow RESPA derives from the statute itself, which also confines this obligation to servicers alone. Specifically, Section 2605 provides that “a servicer of a federally related mortgage shall not…fail to comply” and that “[w]hoever fails to comply with any provision of this section shall be liable to the borrower for each such failure.” Because only “servicers” can “fail to comply” with Section 2605, only servicers can be “liable to the borrower” for those failures.
The Court further noted that when Congress chose to impose RESPA duties more broadly, it did so clearly and explicitly. For example, RESPA’s prohibition on kickbacks and unearned fees states that “no person” shall engage in the forbidden conduct. But Congress chose a narrower set of potential defendants for the violations that the homeowner alleged in this case. The difference, the Court concluded, matters. “When Congress includes particular language in one section of a statute but omits it in another, we presume that Congress intended a different meaning.”
Thus, even had the homeowner pled an agency relationship between the bank and its servicer, the text of RESPA plainly and unambiguously shields the bank from any liability arising from its loan servicer’s alleged violations.
Author
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Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.
