Buyer Beware! Decision a Potential Pain for the Assignee

According to a recent ruling by the Eighth District Court of Appeals, the secondary market holder of a note and assignee of the corresponding mortgage that sent an default/demand letter to its borrower after the borrower received a Chapter 7 Bankruptcy Discharge is a “nonbank mortgage lender” under R.C. § 1345.01.

In Powers v. Green Tree Servicing, L.L.C., 2015-Ohio-3355 (8th Dist. 2015), the appellate court stated as follows in reversing the trial court’s granting of Green Tree’s motion to dismiss:

 {¶ 12} “A debt collector is governed as a ‘supplier’ by the OCSPA if the underlying debt was accrued during a consumer transaction.” (citations omitted) Mortgage servicing would appear to fall in the same category. However, the Ohio Supreme Court has ruled that a mortgage servicer is not a supplier and mortgage servicing is not a transaction under the OCSPA. Anderson v. Barclay's Capital Real Estate, Inc., 136 Ohio St.3d 31, 2013–Ohio–1933, 989 N.E.2d 997.

{¶ 13} There, the Ohio Supreme Court held that this is not the type of transaction that falls within the OCSPA as between a mortgagor and a company hired by the mortgagee to service the debt. The court held both that the servicing of a mortgage loan is not a consumer transaction and mortgage servicers are not suppliers under the act. Id. at paragraphs one and two of the syllabus. Green Tree uses these holdings to argue it is a mortgage servicer not engaged in a consumer transaction.

{¶ 14} The OCSPA specifies that consumer transactions include “transactions in connection with residential mortgages between * * * nonbank mortgage lenders and their customers * * *.” R.C. 1345.01(A). Here, Green Tree is a nonbank mortgage lender as the assignee and holder of Powers's residential mortgage and note. Green Tree is not a mortgage servicer. Green Tree, as the assignee of the mortgage, steps in to the shoes of the original mortgage lender.

Because the Ohio Consumer Sales Protection Act (OCSPA) entitles successful claimants to treble damages and attorney’s fees, this decision could have wide ranging repercussions for secondary market debt-holders that service their own accounts when issuing default/demand letters to borrowers.

Indeed, secondary market-debt holders, in addition to having to protect themselves from liability under Truth in Lending Act (TILA), Real Estate Settlement Procedures Act (RESPA) and Fair Debt Collection Practices Act (FDCPA), will now have to familiarize themselves with the OCSPA to avoid potential pitfalls. 

Note: buyer beware!

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