Loan Servicer That Is Also The Original Creditor Is Not Required By The Truth In Lending Act To Respond To A Borrower’s Request For Information About The Current Owner Of The Obligation

In Gale v. First Franklin Loan Services (— F.3d —-, C.A.9 (Nev.), July 12, 2012), the United States Court of Appeals considered whether the Truth in Lending Act (“TILA”) required a loan servicer, that is also the original creditor, to respond to a borrower’s request for information about the current owner of the obligation.  The court ruled that TILA requires only servicers that are assignees, and not original creditors, to provide that information.


In 2006, Richard Gale (“Gale”) refinanced his home in Las Vegas with First Franklin Loan Services (“Franklin”).  Franklin was both the creditor and servicer for the loan.  The deed of trust designated Mortgage Electronic Registration Systems, Inc. (“MERS”) as the trust beneficiary.  Facing financial difficulties, Gale stopped making payments on his loan in 2008.  In June 2008, Gale sent a letter to Franklin explaining his circumstances and discussing possible ways to avoid foreclosure.  To ensure he was reaching the right audience, Gale also asked Franklin to provide the name and address of the true owner of the obligation or holder of his promissory note.  Gale did not receive a response from Franklin and wrote again in August 2008, receiving no response.  By 2008, Cal-Western Reconveyance Corporation (“Cal-Western”) had been substituted as trustee on Gale’s deed of trust.  Cal-Western recorded a Notice of Trustee’s Sale of Gale’s home. 

Gale filed suit against all of the financial institutions involved, seeking injunctive relief against foreclosure.  Gale alleged federal violations of TILA for the failure of Franklin to respond to his correspondence, and wrongful foreclosure and breach of fiduciary duty under Nevada law.  The district court dismissed both Gale’s federal and state claims.  Gale appealed.


The court reviewed 15 U.S.C. § 1641(f)(2), the language of TILA that Gale alleged Franklin violated: “Upon written request by the obligor, the servicer shall provide the obligor, to the best knowledge of the servicer, with the name, address, and telephone number of the owner of his obligation or the master servicer of the obligation.”

The court found that the language, viewed alone, could reasonably be construed to mean that Franklin was required to respond to Gale.  However, a broader analysis of § 1641 reveals that the section is intended to apply to the duties of entities who are purchasers or assignees of mortgages, not original creditors.  Construed in that broader context, the court said, “liability for failing to respond attaches only to those servicers who are also assignees of the loan.”  Because Franklin was not an assignee of the loan, but rather the original creditor, it cannot be held liable for failing to respond, the court ruled.  “It would be anomalous for Congress to randomly impose a duty on servicers in general in a section otherwise completely devoted to describing the duties of assignees,” the court said.  The district court therefore correctly dismissed Gale’s TILA claims. 

Although Gale’s federal claims were dismissed, his state claims of wrongful foreclosure and breach of fiduciary duty had been “refined on appeal.”  The court determined that the district court should consider whether Gale’s claims warrant further consideration in state court.

The district court’s judgment was therefore affirmed in part, vacated in part, and remanded.  The dismissal of Gale’s TILA claims was reversed but the dismissal of his state claims was vacated and remanded.


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