Federal National Mortgage Association Cannot Be Held Vicariously Liable for Acts of Agent Without Actual Authority

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The United States Court of Appeals for the First Circuit has held, in a matter of first impression, that the Federal National Mortgage Association, commonly known as Fannie Mae, cannot be held vicariously liable for the acts of its agent absent actual authority from Fannie Mae for the agent’s actions. Faiella v. Federal National Mortgage Association.

Faiella took out a home loan secured by a mortgage on his residence in New Hampshire. The loan was assigned to Fannie Mae, which arranged for Ditech Financial, LLC (“Ditech”) to service the loan on behalf of Fannie Mae. In the summer of 2015, Faiella missed a payment, and contacted his Ditech representative to arrange late payment. While attempting to resolve his late payment with Ditech, Faiella received a foreclosure notice from Fannie Mae, and Fannie Mae acquired the property at a foreclosure sale on October 16, 2015.

Faiella sued Ditech and Fannie Mae for rescission of the foreclosure as well as damages for wrongful foreclosure and emotional distress. Ditech was dismissed from the suit on the basis that it had not participated in the foreclosure proceedings, and Faiella’s suit was reduced to common-law claims alleging that Fannie Mae was vicariously liable for its agent’s, Ditech’s, alleged deceit and misrepresentation.

Fannie Mae moved for summary judgment on the basis of the Merrill doctrine, arguing that as a federal instrumentality protected from vicarious liability for the unauthorized acts of its agents. See Fed. Crop Ins. Co. v. Merrill. The First Circuit agreed, analogizing to a prior Seventh Circuit case finding that the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, is a federal instrumentality for purposes of the Merrill doctrine. Because the federal government can be held vicariously liable only where it has granted actual authority for the allegedly wrongful acts of its agents, Faiella could not maintain his case where there was no evidence of any such grant of actual authority.

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