Update: On May 14, 2013 the Supreme Court handed down a merit decision in this case. Read the analysis here.
Read the analysis of the oral argument here.
On February 26, 2013, the Supreme Court of Ohio will hear oral argument in the case of Sondra Anderson v. Barclays Capital Real Estate Inc., d.b.a. Home EqServicing, 2011-0908. The issue is whether mortgage servicers are covered under the Ohio Consumer Sales Practices Act, R.C. 1345.01. (CSPA.) This case comes to the Supreme Court by certified question from the Federal District Court for the Northern District of Ohio.
The certified questions in this case are identical to two of the three previously certified, briefed, and argued before the Court in Blank v. GMAC Mortgage, LLC, 2011-890. (In the original filing of this case, Attorney General DeWine was the petitioner, but because of a settlement, asked the Court to change his status to amicus curiae in that case. It has been re-captioned accordingly.) Originally, the Court held the Anderson case until a decision could be reached in the GMAC case. However, the GMAC case has been stayed indefinitely because of bankruptcy proceedings, and the Supreme Court decided that the Anderson case should go forward. Read about the GMAC case here.
Case Background
At some point after Sondra Anderson financed the purchase of her home through a note and mortgage, Barclays Capital Real Estate, doing business as HomEq, began acting as the servicer of her loan. Anderson raised allegations of misconduct against HomEq, including a failure to apply her payments in the manner required by her note and mortgage, failure to account for some of her payments, and failure to accurately respond to repeated inquiries about her mortgage loan. The federal judge in the case concluded that there was no controlling precedent on whether the Ohio Consumer Sales Practices Act applies to stand-alone “mortgage servicers” such as HomEq and certified the questions to the Supreme Court of Ohio to resolve the issue. Those questions are whether the servicing of a borrower’s residential loan constitutes a consumer transaction and whether the entities servicing such loans are suppliers for the purposes of the Ohio CSPA.
Key Statute/ Precedent
Ohio Consumer Sales Practices Act, R.C. Section 1345.01(A)and (C).
Barclays’ Argument
Barclays’ arguments in this case are similar to those made by GMAC in the Blank case. Barclays argues that the servicing of a borrower’s residential mortgage loan does not constitute a “consumer transaction” under Section 1345.01(A). In support of this, Barclays urges the Court to look to the plain language of the statute, rather than to resort to interpretive aids, as the statute contains no ambiguities. Because mortgage servicing is a collateral service associated with the sale of real estate, not the sale of anything to consumers, Barclays argues that it is not subject to the CSPA. Such servicing is performed for the benefit of the note-holders with whom Barclays enters into agreements, not with individual home owners, and does not therefore constitute a transfer of a service to a consumer.
Additionally, Barclays urges the Court to find that entities that service such loans are not “suppliers engaged in the business of effecting or soliciting consumer transactions” within the meaning of the CSPA. Mortgage servicers are not suppliers under the statute because they do not solicit consumer transactions, nor do they “effect” them (i.e. bring them about.) The legislature chose these words carefully, and they do not fit what servicers do. If the Court does determine that the pertinent statutory provisions are ambiguous, the rules of statutory construction confirm that the General Assembly never intended to regulate mortgage services under the Ohio CSPA.
Ultimately, Barclays, noting that mortgage servicers are regulated under federal law, urges the Court to answer both certified questions in the negative and confirm that mortgage servicers are not within the purview of Ohio’s CSPA.
Anderson’s Argument
At the outset, Anderson suggests a significant difference between this case and the stayed GMAC case. In GMAC the allegations centered on the practice of “robo-signing” documents in foreclosure litigation. Anderson asserts that this case deals with the broader day-to-day business of mortgage servicers, including collecting and applying monthly payments and responding to questions by borrowers about their loans.
Anderson argues that the CSPA contains broad definitions of the terms “supplier” and “consumer transaction” to include a wide range of payment collection and servicing activities. She argues that mortgage loan servicers fall easily within these definitions, noting that the General Assembly never specifically exempted mortgage servicers from the definition of “supplier” under the CSPA, which it easily could have done. Anderson directs the Court’s attention to the duties of such servicers; even without privity of contract, HomEq accepts, applies, and distributes a borrower’s payments, performing labor for the benefit of the consumer, which constitutes providing “services” under the statute.
Urging the Court to construe the CSPA as broadly as its plain language requires, Anderson asks that the Court find that the statute applies to mortgage services, and to answer both certified questions in the affirmative.
In support of Anderson, several amici curiae submitted briefs to the Court, including Ohio Association for Justice, State of Ohio, and Ohio Legal Services Programs. For the protection of customers from deceptive acts conducted by suppliers, the amici urge the Court to apply the CSPA to mortgage loan services. The language of the statute, the underlying public policy, and the legislative history all indicate that the General Assembly intended for consumers to have a broad ability to address deceptive and unfair behavior in consumer transactions and thereby protect and promote the public welfare.
The Attorney General’s office—one of Anderson’s amici—will divide oral argument with Anderson.
Student Contributor: Elizabeth Chesnut