SJC Decision Highlights Principles Of Successor Lender Liability

Based upon a recent decision of the SJC, a successor lender, as assignee of the lender that originated a mortgage loan, may be liable for the originating lender's unconscionable acts, although a mere servicer of the loan may not be liable absent a showing that the servicer was an assignee of the loan.

In Drakopoulos v. U.S. Bank, Nat'l Ass'n, 465 Mass. 775 (2013), the SJC considered whether (a) a lender, by virtue of its status as assignee of a residential mortgage, or (b) a loan servicer could be liable for violations by the loan originator of the Consumer Protection Act, the Predatory Home Loan Practices Act, or the Borrower's Interest Act. In Drakopoulos, the residential borrowers defaulted on a loan with monthly payments approximately $600 greater than the borrowers' total monthly income. The loan was subsequently transferred into a securitized pool of loans and the successor lender foreclosed on the mortgage.

The alleged predatory lending practices in Drakopolous included the lender's processing of the loan as a 10.315% fixed interest rate stated income loan (notwithstanding its receipt of documentation of the borrowers' income), the borrowers' unawareness that their household income was inflated on the loan application, and the lack of a condition requiring the borrowers to demonstrate their ability to make mortgage payments that would be more than 150% greater than their current payment. The SJC applied common law principles of assignee...