Assignee Liability in Residential Mortgage Transactions


As long as lenders have been assigning the loans they make to investors, borrowers have been trying to hold investors to account for lenders' alleged misdeeds. And for almost as long, investors have maintained that they are not, and should not be, responsible for those misdeeds. No legal doctrine, however, whether rooted in ancient case law or arising out of a recently enacted statute, has established once and for all the relative legal positions of lender, borrower and assignee. This article provides an overview of the development and current state of the law of assignee liability and discusses two legal trends that are contributing to that pressure. One trend imputes to the assignee enough knowledge of the activities of the lender from which the assignee buys the lender's loan production that the assignee cannot be considered a purchaser "without notice." The second trend is to assert that the secondary market arrangement in which the assignee buys loans from the lender is really a sham, that there is no legally cognizable distinction between the lender and the assignee, and the assignee should not be entitled to special legal protections. Because the latter argument in particular deviates markedly from the principles underlying the law of assignee liability, it represents an unprecedented challenge to ordinary American lending practices and calls for assignees of loans to think strategically about their legal position in entirely new ways.

This article was co-authored with Jacob Thiessen and Jennifer Beall and appeared in the Review of Banking and Financial Services, Volume 19, No. 3, and is reprinted with permission.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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