On May 14, 2013, the Ohio Supreme
Court in Anderson v. Barclay’s Real
Estate, Inc., Slip Opinion No. 2013-Ohio-1933 answered the above question
posed to it by the Federal District Court for the Northern District of Ohio by
holding that “the servicing of a borrower’s residential mortgage loan is not a ‘consumer transaction’
as defined in O.R.C. 1345.01(a); and “an entity that services a residential
mortgage loan is not a ‘supplier’ as defined in O.R.C. 1345.01(C).
A complete background and fact
summary of the case can be found in this author’s earlier blog posting of March
4, 2013 appropriately titled: “Is a Mortgage Service Company a Supplier of Consumer
Transactions pursuant to the Ohio Consumer Sales Practices Act (“CSPA”)? Basically, the Anderson case originated in the Federal District Court for the
Northern District of Ohio, who concluded (with regard to the CSPA claims) that
there was no controlling precedent in Ohio on whether the CSPA applied to
mortgage services, so the Federal Court asked the Ohio Supreme Court to answer
the following two questions:
1) Does the servicing of a borrower’s residential mortgage loan
constitute a “consumer transaction” as defined in the Ohio Consumer
Sales Practices Act, O.R.C. 1345.01(a)?
The Plaintiff, Mrs. Anderson argued that the answer to this first question
should be “yes” because mortgage servicers provide a number of services to
borrowers, including accepting their payments and working with borrowers to
obtain loan modifications. The servicer,
Barclay’s Real Estate, Inc. dba HomEq
Servicing (“HomEq”) argued that mortgage servicers perform their services for financial
institutions, not for borrowers/consumers, and that therefore the
transactions were commercial and not covered by the CSPA.
The Supreme Court of Ohio agreed
with HomEq, holding that the servicing of a borrower’s residential mortgage
loan is not a “consumer transaction.” To
justify its holding, the court first recognized that one essential element of
O.R.C. Section 1345.01(a) was not met:
that there was no “sale, lease,
assignment, award by chance, or other transfer of a service [by the servicer]to
a consumer”. Rather, the
court reasoned that mortgage servicing is a contractual agreement between the
mortgage servicer and financial institution, with no direct contract between
the borrower and the mortgage servicer.
While the court acknowledged that the servicer’s duties might involve
interaction with borrowers, it reasoned that those interactions are always on
behalf of the financial institution.
The court further reasoned that
service provider transactions are not consumer transactions because there is no
“transfer of an item of goods, a service, a franchise or an intangible”
as required by the statute. The court explained that while a financial
institution may contract with a mortgage servicer to service a loan, the
mortgage servicer does not transfer a service to the borrower. The court’s decision was also influenced
by: (1) the CSPA 2007 amendment which
added dealings between consumers and loan officers, non-bank mortgage lenders
and mortgage brokers as being covered by the CSPA but did not include dealings
between consumers and mortgage servicers; (2) Uniform Consumer Sales Practices
Act commentary which noted that land transactions should be specifically
excluded from Consumer Sales Practices Acts; (3) Ohio court decisions holding
that the CSPA does not apply to “collateral services” that are solely
associated with the sale of real estate; and (4) other states that wanted real
estate transactions and loan servicing covered by their consumer protection
statutes specifically defined consumer transactions to include them.
2) Is a mortgage servicer a “supplier”?
Mrs. Anderson argued that servicers are “suppliers” within the CSPA
because they essentially function as collection agencies. The court disagreed, concluding that in order
to be a supplier, the servicer would have to be engaged in the business of
“effecting” or “soliciting” consumer transactions as provided in O.R.C.
1345.01(c). The terms “effecting” and “soliciting”
are not defined in the CSPA, so the court went to Black’s Law Dictionary and
found “effect” to mean “to bring about or to make happen”; and “solicit” to
mean “requesting or seeking to obtain something”. Since servicing a
mortgage does not cause a consumer transaction to happen, and mortgage
servicers do not seek or request borrowers, the court handily dismissed
the plaintiff’s argument and held that servicers are not “suppliers” under the CSPA.
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