BRYLLAW LITIGATION: Homeowner wins $35,000 against HSBC for creditor's failure to disclose the identity of the loan owner; Ruling provides effective means to determine ownership of mortgage loans

Yesterday, a Virginia homeowner was awarded a total of approximately $35,000 in damages, costs, sanctions, and attorney fees against HSBC Mortgage Corporation for HSBC's failure to disclose to the homeowner the identity of the owner of his mortgage loan.  This court opinion is a significant blow to the banks' nation-wide practice of playing games using the loan owner identity issue and obfuscating the issue in an effort to avoid liability and drag the homeowner into a money pit of substantial litigation.

The district court in Alexandria found that disclosure of debt owner identity is essential for every borrower because such information is indispensable in pursuing claims for rescission of a mortgage loan as well as other claims related to a loan contract.

Based on this ruling, it appears that, at least in Virginia, one of the best ways to obtain a creditor's opinion on the ownership of a particular mortgage is not a widely circulated Qualified Written Request (QWR), but a specific request under the Truth In Lending Act (TILA) directed at the servicer and any known transferee of the mortgage loan seeking appropriate information.  If such information is not timely disclosed, a borrower can sue and recover damages and attorney fees for such a failure to disclose.  This puts borrowers in a strong position, as many attorneys should be willing to take cases and hold creditors accountable where attorney fees are easily recoverable, as explained in the quotes below.

Notable quotes:

"By failing to disclose . . . the noteholder's identity . . ., HSBC substantially impeded Bradford's efforts to rescind the . . . loan, as he may have been entitled to do under [TILA]."

The "prospect that a creditor-servicer may be liable for fees incurred finding the noteholder encourages the creditor-servicer to disclose the noteholder's identity promptly and accurately [;] this result serves the purpose of TILA's fee shifting provision, which 'subsidizes the lawsuits of meritorious plaintiffs' by giving a lawyer sufficient incentive to accept the TILA claimant's representation and litigate the issue of the noteholder's identity."

This result also "discourag[es] creditor-servicer, such as HSBC here, from attempting to avoid liability for disclosure violations through sale of the loan and refusal to respond to the borrower's requests for the owner's identity until after the three-year . . . period for rescission has lapsed."

The case is Bradford v. HSBC Mortg. Corp., 1:09-cv-01226 (E.D. Va. Apr. 26, 2012).