August 1, 2013
by Rick DeBlasis & Amy L. Fogelman
Lerner, Sampson & Rothfuss – USFN Member (Kentucky, Ohio)
Summarized in this article are two recent decisions of the Ohio Supreme Court relevant to the mortgage servicing industry.
Anderson v. Barclay’s Capital Real Estate, Inc., 2013-Ohio-1933
In Anderson, two certified questions were before the Ohio Supreme Court:
1. Does the servicing of a borrower’s residential mortgage loan constitute a “consumer transaction,” as defined in the Ohio Consumer Sales Practices Act (OCSPA), R.C. 1345.01(A)?
2. Are entities that service residential mortgage loans “suppliers *** engaged in the business of effecting or soliciting consumer transactions,” within the meaning of the OCSPA, R.C. 1345.01(C)?
The court answered both questions in the negative. Specifically, the court decided that the “contractual relationship” in mortgage servicing is between the servicer and the financial institution that owns the loan. Even though the servicer may deal directly with the borrower, there is no “sale, lease, assignment, award by chance, or other transfer of a service to a customer,” as required under the Act.
The court also held that in order to be a “supplier” under the statute, one must “engage in the business of effecting or soliciting consumer transactions.” A mortgage transaction is between the borrower and the financial institution, not the mortgage servicer. The servicing relationship and activities didn’t cause the mortgage transaction to happen; therefore, the servicer did not qualify as a supplier.
Clark v. Lender Processing Services, Inc., 2013 U.S. Dist. LEXIS 80442
Clark was a class action brought in the Cleveland federal district court by plaintiffs-homeowners who were all subjected to foreclosures in Ohio state courts. The defendants were LPS Default Solutions; Lender Processing Services, Inc.; DOCX, LLC; and three Ohio law firms that conducted the foreclosures. The plaintiffs alleged that the defendants filed foreclosure suits against them, as well as a class of similarly-situated homeowners, on behalf of entities that lacked standing to initiate the foreclosures, whether because of allegedly forged or otherwise defective assignments or noncompliance with PSAs, in violation of the FDCPA and OCSPA. Resolving multiple motions to dismiss, the court rejected all of the plaintiffs’ claims, stating that because the plaintiffs were not parties to the contracts they sought to challenge, they lacked standing to attack them. Lack of standing to attack the transfer agreements equated with lacking claims under the FDCPA or OCSPA.
Further, in dismissing all OCSPA claims, the court: (1) joined a growing number of cases holding that when an attorney represents a financial institution that is exempt under the OCSPA, the attorney is also exempt from that statute; (2) recognized that the Ohio Supreme Court, in its Anderson decision (supra), ruled that transactions between mortgage service providers and homeowners are not “consumer transactions” under the OCSPA because there is no transfer of an item of goods, a service, a franchise, or an intangible, to an individual; and (3) agreed “with Defendants that nothing about the definition of ‘supplier’ under the OCSPA supports the conclusion that those who provide services to financial institutions in connection with foreclosure of delinquent mortgages are ‘suppliers’ for purposes of the statute.”
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