Bank Cannot Be Liable for RESPA Violation under Vicarious Liability Theory

Posted by NCBRC - October 1, 2019

In a case of first impression, the Fifth Circuit held that a RESPA action under section 2605 against a servicer for failure to comply with its obligation to provide loss-mitigation options to the homeowner, could not extend to the mortgagee Bank under a theory of respondeat superior. Christiana Trust v. Riddle, 911 F.3d 799 (5th Cir. Dec. 21, 2018).

Here, the homeowner, Mary Sue Riddle, took out a loan with Bank of America and the Bank engaged Ocwen Loan Servicing to service the loan. After the current loan-owner, Christiana Trust, initiated foreclosure proceedings against Ms. Riddle, she counterclaimed and filed a third-party complaint against the Bank and Ocwen, alleging that the servicer failed to comply with RESPA’s mandate that it respond to Ms. Riddle’s timely application for loss-mitigation options. Specifically, Ms. Riddle invoked 12 U.S.C. § 2605(k)(1)(E), which provides that “a servicer of a federally related mortgage shall not … fail to comply with any other obligation found by the Bureau of Consumer Financial Protection, by regulation, to be appropriate to carry out the consumer protection purposes of this chapter.” The district court granted the Bank’s motion to dismiss on the dual bases that Ms. Riddle failed to support her claim that the Bank was vicariously liable for Ocwen’s actions, and, in the alternative, because under section 2605(k)(1)(E), the Bank could not be held liable for the actions of its servicer even if an agency relationship were established.

While the first basis upon which dismissal was granted—failure to plead agency—was specific to the facts of this case, the second finding has broader ramifications. In finding that the Bank could not be held liable for the RESPA violation of its servicer, the Fifth Circuit relied on the language of the statute which specifies that “a servicer” shall comply with obligations set out in the regulations promulgated by the Bureau of Consumer Financial Protection. The court found that had Congress intended to leave room for a cause of action against the loan owner based solely on the conduct of its servicer it would have used broader language such as that used in section 2607 relating to kickbacks and unearned fees where Congress mandated that “no person” shall commit the specified violation. The court noted that most district courts addressing the issue have reached the same conclusion. It pointed to Rouleau v. U.S. Bank, NA, No. 14-CV-568 JL, 2015 WL 1757104 (D. N.H. Apr. 17, 2015), as stating the opposite view that RESPA creates a type of tort law that incorporates tort principles of vicarious liability. The Fifth Circuit disagreed, finding that Congress’s specification that section 2605 applies to servicers precludes expansion of that section beyond servicers under common law tort theories. Based on the limiting language of section 2605, therefore, the circuit court held that “Bank of America, as a matter of law, is not vicariously liable for the alleged RESPA violations of its servicers.”

Christiana Trust v Riddle


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