Mortgage Servicing Not A Consumer Transaction

June 14, 2013 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts by Brad Council

The matter Anderson v. Barclay’s Capital Real Estate, Inc., Slip Opinion No. 2013-Ohio-1933, came before the Supreme Court of Ohio with the queries:  Is the servicing of a residential mortgage considered a “consumer transaction” as defined by the Ohio Consumer Sales Practice Act (“CSPA”) as codified in R.C.1345.01(A) and is the servicing entity a “supplier” as defined in R.C. 1345.01(C)?

By way of background, Barclays Capital Real Estate, which does business as HomeEq Servicing (“HomeEq”) engages in the servicing of residential mortgages.  In other words, it “accepts, applies and distributes mortgage loan payments and other fees, penalties and assessments, and in connection with doing so exercises discretion regarding the fees charged or applied to a particular mortgage loan account.”  It is neither a bank nor a financial institution as defined in RC 1345.01(A).

Sondra Anderson, plaintiff in the underlying cause, contended that mortgage servicing constituted a “consumer transaction” because it provided a service to the mortgage holder.  However, HomeEq countered that mortgage servicers provide services to the financial institution, not the borrower per se, thereby making the transactions commercial and not covered under the CSPA.

The CSPA defines a consumer transaction as “a sale, lease, assignment, award by chance or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes  that are primarily personal, family, or household, or solicitation to supply any of those things.”   In Anderson, there is not sale, lease, assignment, award by chance or other transfer to a consumer.  The mortgage servicing is done between the mortgage servicer and the financial institution only. There is no contract between the borrower and the mortgage servicer.  There have been instances where the mortgage servicer will negotiate a modification of the mortgage but does so on behalf of the financial institution, not the borrower.

The court found that mortgage servicing is a “collateral service” much like appraisal services or title services and therefore, except where specified in the statute, “are solely associated with the sale of real estate and are necessary to effectuate a ‘pure’ real estate transaction” and therefore not covered under CSPA.  See also Hanlin v. Ohio Builders & Remodelers, Inc., 212 F.Supp.2d 752,757 (S.D.Ohio 2002) (closing services were “part and parcel of the real estate transaction” and thus outside the CSPA).  The Court supports it’s position by invoking commentary to the Uniform Consumer Sales Practices Act which states, “On the assumption that land transaction frequently are, and should be, regulated by specialized legislation, they are excluded altogether.” 7A, Part I, National Conference of Commissioners on Uniform State Laws, Uniform Laws Annotated, Business and Financial Law, Uniform Consumer Sales Practices Act, Official Comment to Section 2(1), at 73 (Master Ed.2002). Even though the General Assembly has amended RC Chapter 1345 on many occasions, it has chosen not to include mortgage services in the definition of transactions subject to the CSPA.

The second query pertains to whether or not mortgage servicers can be classified as suppliers as defined in the CSPA.  The court held that they are not suppliers as, under the CSPA, a supplier “means a seller, lessor, assignor, franchisor or other person engaged in the business of effecting or soliciting consumer transactions, whether or not the person deals directly with the consumer.” RC 1345.01(C).  The court found that HomEq only serviced the mortgage and did cause and/or request the transaction between the financial institution and the borrower to occur.

In one of the two dissenting opinions, it is alleged that HomEq was remiss in its servicing duties in that it failed to apply Anderson’s (the plaintiff in the underlying cause) payments as required by her note and mortgage, failed to adequately answer her repeated inquiries and failed to acknowledge her payments and forward them to the lender.  She was subject to the negligence of HomEq but had no measure of remedy as she did not have a contractual relationship with HomEq. Judge O’Neill continues that because the CSPA is remedial in nature, it must be construed in favor of the consumer.  Further, that because mortgage servicers are not specifically exempt from the statute that they must be included.

In conclusion, despite two dissenting opinions, the court found that mortgage servicing is not a consumer transaction under the CSPA and the mortgage servicer is not a supplier therefore the CSPA does not apply.

 

The Full Text of the Court Opinion May Be Found Here:

http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2013/2013-ohio-1933.pdf

 

Many thanks to Kim Goldwasser for her contributions to this article.  Kim is a paralegal with Slovin & Associates Co., L.P.A.