Court Holds Master Servicer May Have Vicarious Liability for Subservicer Under RESPA

A federal district court in Idaho recently held that a master servicer may have vicarious liability for its subservicer’s RESPA violations if the master servicer and subservicer are engaged in a principal-agent relationship.

The court’s determination followed several other district courts but split from the Fifth Circuit Court of Appeals (which is not the appellate court for the district court in Idaho).  The court reasoned that 1) a master servicer is a “servicer” as that term is defined by RESPA because a master servicer is responsible for servicing a loan; and 2) RESPA’s statutory text does not evidence a Congressional intent against ordinary tort-related vicarious liability rules, and those ordinary rules allow for the imposition of vicarious liability.

The court’s decision does not hold that a master servicer will be automatically or always held vicariously liable for its subservicer’s RESPA violations.  Instead, it indicated that as in the case of all vicarious liability claims, a principal-agent relationship, which is conditioned on the control the principal has over the agent’s work, must be proven in order to establish vicarious liability.