Court Holds Debt Buyer Wilmington Trust Vicariously Liable for Servicer

A federal court in Maine has ruled that a mortgage debt buyer can be held vicariously liable under the Fair Debt Collection Practices Act for allegedly misleading collection and foreclosure communications sent by its loan servicer.

A federal judge in the District of Maine has held that Wilmington Trust National Association, acting as trustee for MFRA Trust 2015-1, may be held vicariously liable under the Fair Debt Collection Practices Act for alleged misconduct by its mortgage servicer, Fay Servicing LLC.

The decision in Wilmington Trust National Association v. Howe is a reminder that purchasers of defaulted mortgage debt cannot necessarily insulate themselves from consumer-collection exposure by delegating servicing, borrower communications and foreclosure administration to a third party. The court concluded that the debt buyer’s relationship with Fay Servicing could support vicarious liability for alleged false threats of foreclosure and allegedly inflated reinstatement or cure figures.

The dispute

The underlying litigation stems from a foreclosure action involving Henry W. Howe IV and Melanie B. Howe. Wilmington Trust, in its capacity as trustee for MFRA Trust 2015-1, filed the federal action in September 2021. The case is pending in the U.S. District Court for the District of Maine before Judge Nancy Torresen.

Melanie Howe asserted counterclaims against Wilmington Trust and Fay Servicing, including FDCPA claims tied to the parties’ loan-servicing and collection activity. The court allowed Howe to add Fay as a counterclaim defendant in May 2022, while denying Wilmington Trust’s effort to strike the counterclaims.

According to the reported ruling, the borrower alleged that Fay sent communications threatening foreclosure action and stated cure amounts that were not accurate. The court concluded those allegations could be attributed to Wilmington Trust under a vicarious-liability theory because Fay was acting as the trust’s servicer in connection with collection of the mortgage obligation.

Why vicarious liability mattered

The central issue was not whether Wilmington Trust itself authored the disputed communications. Instead, the question was whether the debt buyer could face FDCPA responsibility for actions taken by a servicer operating on its behalf.

The court’s answer was yes, at least on the facts alleged and the relationship described in the case. That result is significant for debt buyers, securitization trusts and other entities that own defaulted consumer obligations but use outside servicers, collection agencies, law firms or subservicers to handle borrower-facing work.

A party that qualifies as a debt collector may be held liable for FDCPA violations committed by an agent acting within the scope of the agency relationship. The practical issue is therefore not simply whether the owner directly placed a call or sent a letter. It is whether the third party was performing collection functions for the owner, under a servicing arrangement that gives the owner the benefit of the collection activity and sufficient control or authority over the work.

The court record identifies Fay Servicing as a counterclaim defendant and contains loan-transfer and servicing materials, including a notice of transfer of servicing rights to Fay and a Fay welcome letter. The docket also reflects discovery involving corporate representatives for both Fay and the trust.

Compliance implications

For debt purchasers and creditors using third-party servicers, the ruling reinforces several operational priorities:

• Vendor oversight must extend beyond initial onboarding. Owners should maintain documented monitoring of servicing scripts, default notices, payoff or reinstatement calculations, foreclosure referrals and escalation practices.

• Foreclosure threats require legal and factual support. Communications should not imply that foreclosure is imminent, authorized or procedurally available if a legal barrier, pending litigation, required notice period or internal approval process prevents the action.

• Cure and reinstatement figures need reliable controls. Amounts quoted to consumers should be traceable to current system data and supported by clear policies governing interest, fees, advances, escrow shortages and attorney costs.

• Servicing agreements should address FDCPA compliance directly. Contracts should clearly allocate operational responsibilities, require legally compliant borrower communications, preserve audit and data-access rights, mandate prompt reporting of complaints and litigation, and provide workable indemnification provisions.

• Ownership status does not end the inquiry. A trust or debt buyer may describe itself as a passive owner or trustee, but a court may look to the reality of the servicing relationship when evaluating potential liability.

The ruling also illustrates the importance of litigation governance after a foreclosure matter becomes contested. The docket shows that the parties engaged in extensive motion practice, a settlement conference, service-related disputes, discovery, corporate-representative depositions and summary-judgment proceedings.

Industry takeaway

The decision does not mean every debt owner is automatically liable for every independent act by a servicer. Vicarious liability remains fact-dependent, and the owner’s status under the FDCPA, the nature of the assignment, the servicer’s authority and the degree of control involved will matter.

But Wilmington Trust v. Howe offers a clear warning for the mortgage servicing and debt-buying sectors: outsourcing consumer-facing collection functions does not necessarily outsource the legal risk. When a servicer communicates collection demands, states a cure amount or threatens foreclosure on behalf of a debt owner, the owner may remain exposed if the communication is deceptive or otherwise violates the FDCPA.

For firms acquiring distressed mortgage assets, the safest approach is to treat servicing oversight as a core compliance function—not merely a vendor-management task.