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Ohio High Court Rules Loan Servicing Not a Consumer Transaction - Anderson v. Barclay's Capital Real Estate

May 31, 2013

Vincent Howard and our Upland foreclosure defense attorneys have substantial experience with the troubles borrowers can have with their loan servicers. Because servicers merely collect payments and communicate with borrowers on behalf of the entity that actually owns the loan, they usually do not have any financial stake in the health of the loan or ability to discuss loan securitization. This caused problems a few years ago, when servicers allowed loan modification applications to go unanswered or denied them for spurious reasons, despite the seriousness of the housing crisis. So we were interested to see an Ohio Supreme Court case about whether a loan servicer may be sued for violations of a consumer protection law. In Anderson v. Barclay's Capital Real Estate Ltd., the high court decided that loan servicers wok for financial institutions, not borrowers, and therefore the law did not apply.

The case came to the Ohio Supreme Court via the U.S. District Court for Northern Ohio, which certified questions of Ohio law: 1) Does loan servicing constitute a consumer transaction as defined by the Ohio Consumer Sales Practices Act? And 2) Are residential mortgage loan servicers "suppliers engaged in the business of effecting or soliciting consumer transactions" within that law? The case was brought by Sondra Anderson against Barclays, doing business as HomEq Servicing. She contended that mortgage servicing is a consumer transaction because the servicer routinely provides several services to borrowers, such as accepting payments and working out payment problems. HomEq is paid from part of the money it collects as part of those duties, it buys homeowner's insurance for borrowers, and it holds itself out as having the authority to make loan workout decisions.

After an analysis, however, the Ohio Supreme Court found that loan servicers like HomEq are not involved in a consumer transaction and do not effect consumer transactions within the meaning of the consumer protection law. In the servicing of a mortgage, the high court found, the interactions with consumers are done pursuant to a contact between the servicer and the financial institution that owns the mortgage and note. There is no contract between the borrower and servicer, and there is no transfer of a service to consumers. Instead, the high court found, mortgage servicing is a "collateral service" solely associated with the sale of real estate and necessary to effect a pure real estate transaction. Ohio has amended the law several times to include other parts of mortgage transactions, the court noted, but not loan servicing. For similar reasons, the court found loan servicers were not a supplier in the business of consumer transactions.

A long dissent in this case argued that the law should apply to loan servicers because their services give them substantial power over consumers, but are not part of the original real estate transaction; and because servicers have no special exemption from the law. Vincent Howard and our Costa Mesa foreclosure defense lawyers strongly agree. Under this decision, loan servicers in Ohio have no accountability to consumers under the CSPA, no matter how badly they behave. The dissent notes that Anderson alleges HomEq failed to apply her payments in the way required by her mortgage, a legal contract; did not forward payments to her lender; and failed to provide accurate information when she asked for it. This echoes some of the horrifying problems we saw with loan servicers during the housing crisis, when borrowers were routinely ignored, lied to or given the runaround by loan servicers. Vincent Howard and our Moreno Valley foreclosure defense attorneys believe Californians, Ohioans and everyone else deserves better than that.

Howard Law, P.C., represents clients across California who are seeking to hold their loan servicers legally responsible for the financial and personal cost of deceptive and unfair behavior. If you'd like to learn more, call us today a 1-800-872-5925 or send us a message online.

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