Freddie Mac Not Liable for Unauthorized Actions of Mortgage Servicers
The United States District Court for the Western District of Washington, citing the Merrill doctrine, has held that the Federal Home Loan Mortgage Corp., more commonly known as Freddie Mac, cannot be held liable for alleged wrongful conduct of its mortgage servicer, Nationstar Mortgage LLC (“Nationstar”). The doctrine, named for Federal Crop. Ins. Corp. v. Merrill, immunizes government agencies for unauthorized actions taken by its agents, such as Freddie Mac’s mortgage servicers. Salom et al. v. Nationstar Mortgage LLC et al.
Plaintiffs had filed a class action suit against Nationstar alleging that it violated the Fair Debt Collection Practices Act by charging fees to prepare loan payoff statements (i.e., fees that were not authorized in their loan agreements.) Plaintiffs then attempted to add Freddie Mac as the representative of a class of defendants consisting of the various banks and other entities who ultimately owned the loans serviced by Nationstar when it charged the challenged fees. The Plaintiffs alleged that Freddie Mac was liable for failing to stop Nationstar’s allegedly wrongful conduct.
The Court dismissed Freddie Mac, agreeing that the Merrill doctrine shielded Freddie Mac from liability. While Freddie Mac and its sister corporation, Fannie Mae, are not government agencies in the traditional sense, they were created by Congress to help facilitate the mortgage market and therefore enjoyed the sort of immunity for unauthorized acts of agents encompassed by the Merrill doctrine. The Plaintiffs did not allege that Freddie Mac expressly authorized its agents’ actions. Rather, Plaintiffs alleged that Freddie Mac endorsed those actions by failing to take any corrective measures. The Court reasoned that, absent any express authorization from Freddie Mac, however, the Merrill doctrine shields Freddie Mac and, therefore, Freddie Mac cannot be held vicariously liable for conduct that it did not authorize.
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