Anderson v. Barclay's Capital Real Estate, Inc.

• Decision Date: 14 May 2013
• Docket Number: No. 2011–0908.,2011–0908.
• Citation: 136 Ohio St.3d 31,989 N.E.2d 997
• Parties: ANDERSON v. BARCLAY'S CAPITAL REAL ESTATE, INC., d.b.a. HomEq Servicing.
• Court: Ohio Supreme Court

136 Ohio St.3d 31

989 N.E.2d 997

ANDERSON

v.BARCLAY'S CAPITAL REAL ESTATE, INC., d.b.a. HomEq Servicing.

No. 2011–0908.

Supreme Court of Ohio.

Submitted Feb. 26, 2013.

Decided May 14, 2013.

Syllabus

of the Court

1. The servicing of a borrower's residential mortgage loan is not a “consumer transaction” as defined in R.C. 1345.01(A).

2. An entity that services a residential mortgage loan is not a “supplier” as defined in R.C. 1345.01(C).

Murray & Murray Co., L.P.A., John T. Murray, Leslie O. Murray, and Michael J. Stewart, Sandusky, for respondent.

Porter, Wright, Morris & Arthur, L.L.P., James D. Curphey, Kathleen M. Trafford, and L. Bradfield Hughes, Columbus; and Buckley Sandler, L.L.P., and Benjamin B. Klubes, for petitioner.

Crawford, Lowry & Associates, L.L.C., and G. Ian Crawford; and Wells Law Office, Inc., and Amy L. Wells, urging that the certified questions be answered in the affirmative for amicus curiae Ohio Association for Justice.

Michael DeWine, Attorney General, Alexandra T. Schimmer, Solicitor General, Michael J. Hendershot, Chief Deputy Solicitor, and Jeffrey R. Loeser, Assistant Attorney General, urging that the certified questions be answered in the affirmative for amicus curiae the Ohio Attorney General.

Linda Cook, Lauren E. Dreshman, Tammy L. Greenwald, Aneel L. Chablani, and Andrew D. Neuhauser, urging that the certified questions be answered in the affirmative for amici curiae Ohio Legal Services Programs, Coalition on Homelessness and Housing in Ohio, Toledo Fair Housing Center, Miami Valley Fair Housing Center, and the National Consumer Law Center.

O'CONNOR, C.J.

[Ohio St.3d 32]{¶ 1} In this case, which is before us on the certification of state-law questions by the United States District Court for the Northern District of Ohio, Western Division, we address whether the Ohio Consumer Sales Practices Act (“CSPA”), codified in R.C. Chapter 1345, applies to the servicing of residential mortgage loans. We determine that it does not.

Relevant Background

{¶ 2} The federal court provided the following facts, circumstances, and allegations from which the questions of law arise:

{¶ 3} Barclays Capital Real Estate, Inc., doing business as HomEq Servicing (“HomEq”), defendant in the underlying action and petitioner here, is a “mortgage servicer” that engages in the business of servicing residential mortgages of individuals. HomEq is not a bank, financial institution, or any other entity defined in R.C. 5725.01.

{¶ 4} HomEq “accepts, applies and distributes mortgage loan payments and other fees, penalties and assessments, and in connection with so doing exercises discretion regarding the fees charged or applied to a particular mortgage loan account.” HomEq is paid for its loan administration and other services “from the payment stream generated by the consumers' residential mortgages.”

{¶ 5} HomEq “maintains customer service departments and call centers to which Ohio residents with loans being serviced by HomEq are directed to call with questions [or] concerns about their mortgage loans” and “directs customers who are in default or danger of default to contact it for options concerning loss [Ohio St.3d 33]mitigation or loan modification and further holds itself out as having authority to make substantive decisions regarding which customers, if any, will receive loan modification agreements or loss mitigation assistance.” HomEq “handles consumer disputes regarding their mortgage loans,” “negotiates and executes loan modification, forbearance and other agreements directly with customers,” and “makes customer service related promises on its website to which consumers are directed by the servicer.” It also “purchases homeowner's insurance on behalf of, and at the expense of, consumers who HomEq believes not to have purchased insurance required by the note and mortgage.”

{¶ 6} The federal court determined that the interpretation of R.C. 1345.01(A) and (C) may be determinative of the case pending before it. Finding no controlling precedent on the determinative issue in Ohio case law, the federal court certified the following questions to us for answers:

1. Does the servicing of a borrower's residential mortgage loan constitute a “consumer transaction” as defined in the Ohio Consumer Sales Practices Act, 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 Ohio Consumer Sales Practices Act, R.C. § 1345.01(C)?

{¶ 7} Before us, Sondra Anderson, plaintiff in the underlying action, contends that mortgage servicing is a “consumer transaction” because the mortgage servicer provides a number of services to borrowers, including accepting payments and working with borrowers to obtain loan modifications. She asserts that we must answer the certified questions in the affirmative. But HomEq counters that mortgage servicers perform services for financial institutions, not for borrowers, and therefore the transactions are commercial in nature and are not covered by the CSPA. It thus avers that we must answer the questions in the negative. For the reasons that follow, we agree with HomEq.

Analysis

{¶ 8} The CSPA prohibits unfair or deceptive acts and unconscionable acts or practices by suppliers in consumer transactions whether they occur before, during, or after the transaction. R.C. 1345.02(A) and 1345.03(A); Williams v. Spitzer Autoworld Canton, L.L.C., 122 Ohio St.3d 546, 2009-Ohio-3554, 913 N.E.2d 410, ¶ 10. The CSPA defines a “consumer transaction” to be

[Ohio St.3d 34]a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things. “Consumer transaction” does not include transactions between persons, defined in sections 4905.03 and 5725.01 [financial institution defined] of the Revised Code, and their customers, except for transactions involving a loan made pursuant to sections 1321.35 to 1321.48 of the Revised Code and transactions in connection with residential mortgages between loan officers, mortgage brokers, or nonbank mortgage lenders and their customers; transactions involving a home construction service contract as defined in section 4722.01 of the Revised Code; transactions between certified public accountants or public accountants and their clients; transactions between attorneys, physicians, or dentists and their clients or patients; and transactions between veterinarians and their patients that pertain to medical treatment but not ancillary services.

R.C. 1345.01(A).

{¶ 9} The CSPA is remedial in nature, having been designed to compensate for incomplete consumer remedies available at common law. Einhorn v. Ford Motor Co., 48 Ohio St.3d 27, 29, 548 N.E.2d 933 (1990); see Roberts & Martz, Consumerism Comes of Age: Treble Damages and Attorney Fees in Consumer Transactions—The Ohio Consumer Sales Practices Act, 42 Ohio St.L.J. 927, 928 (1981). Thus, we must liberally construe the statute in favor of the consumer. Whitaker v. M.T. Automotive, Inc., 111 Ohio St.3d 177, 2006-Ohio-5481, 855 N.E.2d 825, ¶ 11, quoting Einhorn at 29, 548 N.E.2d 933;see alsoR.C. 1.11.

{¶ 10} Notably, however, the CSPA has no application in a “pure” real estate transaction. Brown v. Liberty Clubs, Inc., 45 Ohio St.3d 191, 193, 543 N.E.2d 783 (1989). In fact, real estate transactions are excluded from the statute's definition of “consumer transaction.” R.C. 1345.01(A); see Shore W. Constr. Co. v. Sroka, 61 Ohio St.3d 45, 48, 572 N.E.2d 646 (1991); Heritage Hills, Ltd. v. Deacon, 49 Ohio St.3d 80, 551 N.E.2d 125 (1990).

Is servicing of a borrower's residential mortgage loan a “consumer transaction”?

{¶ 11} The first question asks whether the servicing of a borrower's residential mortgage loan constitutes a “consumer transaction” as defined in the Ohio Consumer Sales Practices Act, R.C. 1345.01(A)? It does not.

{¶ 12} In the servicing of a real estate mortgage, one essential element of R.C. 1345.01(A) is not met: there is no sale, lease, assignment, award by chance, or other transfer of a service to a consumer.

[Ohio St.3d 35]{¶ 13} Mortgage servicing is a contractual agreement between the mortgage servicer and the financial institution that owns both the note and mortgage. Mortgage servicing is carried out in the absence of a contract between the borrower and the mortgage servicer. We recognize that the mortgage servicer's duties may involve direct and indirect interactions with borrowers on behalf of the financial institution. Sometimes the mortgage servicer may even assist the borrower in modifying the terms of the note, but the mortgage servicer undertakes the negotiation not for itself but on behalf of the financial institution.

{¶ 14} These interactions do not satisfy the language found in R.C. 1345.01(A). Instead, mortgage servicing, similar to appraisal services and title services, is a “collateral service” associated with a pure real estate transaction. Except for the transactions specified in the statute, the CSPA does not apply to “collateral services that are solely associated with the sale of real estate and are necessary to effectuate a ‘pure’ real estate transaction.” U.S. Bank v. Amir, 8th Dist. No. 97438, 2012-Ohio-2772, 2012 WL 2355620, ¶ 42–43, citing Hurst v. Ent. Title Agency, Inc., 157 Ohio App.3d 133, 2004-Ohio-2307, 809 N.E.2d 689, ¶ 34–35 (holding that the escrow services involved were collateral services related to the real estate transaction and that they were therefore not subject to the CSPA), citing Colburn v. Baier Realty & Auctioneers, 11th Dist. No. 2002–T–0161, 2003-Ohio-6694, 2003 WL 22931379, ¶ 16.See also Hanlin v. Ohio Builders & Remodelers, Inc., 212 F.Supp.2d 752, 757 (S.D.Ohio 2002) (closing services were “part and parcel of the real estate transaction” and...