Opinion ID: 4572464
Heading Depth: 2
Heading Rank: 2

Heading: Freedom’s contentions

Text: Freedom argues this reading is wrong for two reasons. First, Freedom asks us to home in on the definition of “servicing.” According to Freedom, because servicing includes “making the payments of principal and interest and such other payments with respect to the amounts received from the borrower,” and NYCB received Harrell’s escrow payment, “[t]hat makes NYCB the servicer.” Appellee Br. 11 (quoting subsection (i)(3)). In other words, “NYCB’s duty under RESPA accrued prior to the transfer” of servicing, and “nothing prevented NYCB from paying the second installment early.” Appellee Br. 12. But this argument confuses the statutory duties of “servicers” with the definition of “servicing.” Subsection (g) obligates “the servicer” to make timely payments from an 13 escrow account. And, as discussed above, that obligation is connected to the terms of the loan and the date a payment is due—not when a payment is received from a borrower nor when a bill is received from the taxing authority. Accord Marks v. Quicken Loans, Inc., 561 F. Supp. 2d 1259, 1264 (S.D. Ala. 2008). On the other hand, subsection (i)(3) simply defines servicing: “receiving any scheduled periodic payments from a borrower . . . and making the payments of principal and interest . . . .” The entity responsible for these activities, see subsection (i)(2), here Freedom, is thus obliged to make payments from escrow as they become due. It does not matter that another entity was once responsible for receiving payments for escrow. In sum, subsection (i)(3) identifies what servicing is. And subsection (i)(2) describes who a servicer is. But subsection (g) governs what a servicer must do. An intuitive assumption seems to underlie Freedom’s argument—that is, a middleman that receives a payment should be responsible for forwarding that payment along to the ultimate recipient. See Appellee Br. 15 (“[W]hen a transferor servicer receives from a borrower all the monies needed to cover tax obligations, that servicer is responsible for paying those obligations, regardless of an intervening transfer. Such a holding . . . is sensible.”). Whether or not this assumption holds in normal transactions, it ignores the use of escrow accounts here. Borrowers, like Harrell, do not make payments simply to a servicer—rather, they make payments to a servicer for deposit into an escrow account. The servicer controls this account in trust; it is not the servicer’s account. See 12 C.F.R. § 1024.17(b). And transferring servicing involves the transfer of control over this escrow account. See 12 C.F.R. §§ 1024.17(e), (i)(4)(ii). Indeed, transferring “all right, title and 14 interest” of NYCB to Freedom expressly included “Related Escrow Accounts.” J.A. 94; see also J.A. 133 (“[NYCB] shall transfer to [Freedom] within three (3) Business Days after the Servicing Transfer Date by wire transfer pursuant to [Freedom’s] instruction all Related Escrow Account balances.”). And so we see no interpretive problem with a transferor servicer depositing a borrower’s payment into escrow, and the transferee servicer dispersing those funds. Second, Freedom argues that the “terms of the [Purchase Agreement] reaffirm the statutory designation of NYCB as the ‘servicer’ for the purposes of the November 2017 tax payment.” Appellee Br. 12. Section 5.09(o)(i) of the Purchase Agreement provides: [NYCB] shall pay or cause to be paid, from the applicable Related Escrow Account, all real estate taxes on the Mortgaged Properties (and all interest, late payments and penalties in connection therewith) (x) for which either (i) a tax bill has been received, [or] (ii) a tax bill was issued on or prior to the Servicing Transfer Date . . . , and (y) that have due dates . . . prior to or within (30) days after the Servicing Transfer Date. J.A. 136. “Thus,” Freedom reasons, NYCB “was obligated to ensure payment of taxes billed with due dates before or within thirty days of October 31, the effective date of the transfer.” Appellee Br. 13. And so, “NYCB was responsible for the November 15 payment.” Id. But because control of Harrell’s escrow accounts would be transferred on or shortly after the servicing transfer date, Freedom acknowledges that this clause required NYCB to act while it was still the servicer. See Appellee Br. 12 (“[N]othing prevented NYCB from paying the second installment early.”). Again, this argument misses the point. NYCB and Freedom are of course free to allocate responsibilities by contract. But a transferor’s contractual responsibility to apply 15 a tax payment before the transfer of servicing has no effect on the transferee’s statutory obligation. Cf. Amicus Br., CFPB, at 21 (discussing contractual relationships between “master servicer[s]” and “subservicer[s]”). Nor is RESPA concerned with what a previous servicer already should have done. This is a contractual matter for NYCB and Freedom to settle, and one on which we express no opinion today. RESPA requires us only to identify who is responsible for servicing the mortgage on the date a tax payment is due. Based on Harrell’s allegations, Freedom was responsible for servicing his mortgage and so was ultimately obligated to see that his tax payment was made.