Prince Lobel’s Financial Services Group recently obtained a favorable decision in a Suffolk Superior Court case that is among the first published opinions in Massachusetts to apply the principle that an assignee of a mortgage loan cannot be held affirmatively liable for the assignor’s alleged wrongful conduct.
In Darden v. Noyes, et. al., Docket No. SUCV2007-01909 (Aug. 5, 2011), the plaintiff asserted claims for affirmative relief against her mortgage brokers, the originating lender, the assignee of her mortgage loan, and the loan servicer, alleging that the brokers and originating lender had engaged in fraudulent and predatory lending practices. Prince Lobel sought dismissal of plaintiff’s common law tort claims against the loan servicer and loan assignee, including claims for civil conspiracy, unconscionability, fraudulent inducement, intentional misrepresentation/fraud, negligent misrepresentation, racial discrimination and intentional infliction of emotional distress. The court ordered dismissal of the plaintiff’s claims and held, among other things, that an assignee of a mortgage loan cannot be held affirmatively liable for the wrongful conduct of the loan assignor.
Quoting precedent established in 1989 in the case of Ford Motor Credit v. Morgan, the court in Darden concluded that “the common law principle that the assignee stands in the assignor’s shoes means only that the debtor can raise the same defenses against the assignee as he could have raised against the assignor.” 404 Mass. 537, 545 (1989). The court further underscored that this “has never been interpreted to mean that the assignee will be liable for all the assignor’s wrongs.” Id. Accordingly, given this general limitation on assignee liability, and based upon its finding that the plaintiff’s complaint contained only vague, “conclusory” allegations against the loan assignee and loan servicer, the court dismissed plaintiff’s common law claims.
The court in Darden also rejected the plaintiff’s argument that, under Ford Motor Credit, a narrow exception to the general rule limiting assignee liability should apply to her claims. Under this exception, a plaintiff may seek affirmative relief against an assignee where (1) the contract itself contains a clause stating that assignees of the contract may be held liable for the assignor’s wrongs, and (2) the assignor’s breach was so substantial that affirmative relief is justified – such as where the claimant “received little or nothing of value from the assignor.” In its ruling, the court in Darden held that because there was no allegation that the mortgage contract contained such a clause, this narrow exception was not available to the plaintiff.
Not only is the Darden decision among the first published opinions in Massachusetts to meaningfully address the principle that, in the mortgage lending context, an assignee cannot be held affirmatively liable for the assignor’s wrongs, but it is also an important precedent in the rapidly growing body of case law that defines the potential liability faced by assignees of mortgage loans – often, large banking institutions that hold pooled and securitized mortgage instruments as trustees – when the alleged misconduct was committed by other parties in connection with the loan origination process.
Click the link below to read the full text of the court’s decision.