Saturday, May 27, 2017

FYI: Fla Ct (19th Jud Cir) Holds Periodic Statements Sent to Borrower Following Dismissal of Foreclosure Not Actionable Under FCCPA

The County Court of the Nineteenth Judicial Circuit in and for St. Lucie County, Florida recently dismissed a borrower's amended complaint against a mortgage servicer alleging violations of the Florida Consumer Collection Practices Act, Fla. Stat. § 559.55, et seq. ("FCCPA") for sending mortgage statements to the borrower following involuntary dismissal, without prejudice, of a foreclosure action.

 

In dismissing the action with prejudice, the Court held that the statements sent by the defendant mortgage servicer were not attempts to collect a debt, and therefore not actionable under the FCCPA.

 

In addition, the Court held that the plaintiff borrower failed to state a cause of action because res judicata did not apply to the dismissal of the foreclosure action, the debt was not barred by the statute of limitations, and any alleged expiration of the statute of limitations would not change the balance due on the mortgage loan.  A copy of the order is attached.

 

The predecessor mortgagee filed a foreclosure action in 2013, which was involuntarily dismissed without prejudice in September 2015 for failing to appear at trial.  Following the dismissal of the foreclosure, the successor servicer of the mortgage ("servicer") mailed two periodic mortgage statements to the borrower. 

 

The borrower filed suit against the servicer alleging that the statements purportedly sought to collect amounts that were barred by the statute of limitations, and therefore supposedly violated the Florida Consumer Collection Practices Act, Fla. Stat. § 559.55, et seq. ("FCCPA") by claiming, attempting or threatening to enforce a debt it knew was not legitimate or asserting a legal right it knew did not exist.  Fla. Stat. § 559.72(9).  The servicer moved to dismiss for failure to state a cause of action under the FCCPA.

 

First, the Court considered whether or not the statements themselves even constituted debt collection under the FCCPA.

 

The Court acknowledged that sending periodic statements for residential mortgage loans is required by the federal Truth in Lending Act ("TILA") and Regulation Z.  See 15 U.S.C. § 1638(f); 12 C.F.R. § 1026.41.  The Court held excluding periodic statements from the reach of the FCCPA is consistent with the Consumer Financial Protecting Bureau's ("CFPB") interpretation of the analogous federal statute, the federal Fair Debt Collection Practices Act ("FDCPA"), which regards the animating purpose of sending periodic statements as compliance with federally mandated informational disclosures, and not the collection of a debt.

 

The Court rejected the borrower's argument that the inclusion of "mini-Miranda" language ("[t]his is an attempt to collect a debt.  All information will be used for that purpose,") transformed the statement into an attempt to collect a debt, as courts throughout the country have held that such language is not probative to the animating purpose of the letter.  See e.g. Maynard v. Cannon, 401 Fed. Appx. 389, 395 (10th Cir. 2010); Lewis v. ACB Bus. Services, Inc.,135 F.3d 389, 399 (6th Cir. 1998); Gburek, 614 F.3d at 386; Goodson v. Bank of Am., NA., 600 Fed. Appx. 422, 432 (6th Cir. 2015); Muller v. Midland Funding, LLC, 14-CV-81117-KAM, 2015 WL 2412361, at *9 (S.D. Fla. May 20, 2015). 

 

The Court noted that the FDCPA, in fact, requires the inclusion of the "mini-Miranda" disclaimer in various communications whose animating purpose is not to collect a debt.  See 15 U.S.C. 1692e(l l); Lewis, 135 F.3d at 399; Maynard 401 Fed. Appx. at 395; Gburek, 614 F.3d at 386; Goodson, 600 Fed. Appx. at 432.

 

Accordingly, the Court held that the periodic statements did not attempt to collect a debt, and were not subject to the FCCPA.

 

Next, the Court considered the borrower's arguments that the statements sought to collect amounts barred by res judicata and the statute of limitations.

 

The Court found that res judicata does not bar collection of the amounts due on the loan because: (i) res judicata does not apply do dismissals without prejudice, because such dismissals are not an adjudication on the merits (See Tilton v. Horton, 137 So. 801, 808 (Fla. 1931) and Markow v. Am. Bay Colony, Inc., 478 So. 2d 413, 414 (Fla. 3d DCA1985)), and; (ii) the doctrine of res judicata would not preclude the collection of these amounts in an acceleration and foreclosure premised on a new and different default even if the initial dismissal were with prejudice. See Singleton v. Greymar Associates, 882 So. 2d 1004, 1006 (Fla. 2004); Bartram v. US. Bank Nat. Ass'n, 41 Fla. L. Weekly S493, 2016 WL 6538647 (Fla. Nov. 3, 2016); Desylvester v. Bank of NY Mellon (Fla. App., 2017).

 

In addition, the Court rejected the borrower's argument that the statements sought to collect amounts barred by the statute of limitations for mortgage foreclosure. 

 

Primarily, the Court held that the borrower's argument was flawed because the debt had not been accelerated, such the statute of limitations had not begun to run.  See Locke v. State Farm Fire & Cas. Co., 509 So. 2d 1375, 1377 (Fla. 1st DCA 1987); Greene v. Bursey, 733 So.2d 1111, 1115 (Fla. 4th DCA 1999).  Even if the debt were once accelerated, the dismissal of the prior foreclosure unwound any prior acceleration, and the mortgagee is not time-barred by the statute of limitations from filing a new foreclosure which accelerates the debt.  See Bartram v. US. Bank Nat. Ass'n, 41 Fla. L. Weekly S493, 2016 WL 6538647, *1 (Fla. Nov. 3, 2016). 

 

Lastly, the Court held that even if the statute of limitations had in fact run, it would have no effect on the content or disclosures within the periodic statement.   See Danielson v. Line, 135 Fla. 585, 185 So. 332, 333 (1938). 

 

Because the statute of limitations is merely procedural in character, and has no bearing on the substance of the underlying contract and mortgage lien, the Court held the appropriate measure of the truthfulness of figures set forth in the statements would be governed by the Florida statute of repose, not the statute of limitations.  Id; Garrison v. Caliber Home Loans, Inc., 616CV9780RL37DCI, 2017 WL 89001, at *3 FN 19 (M.D. Fla. Jan. 10, 2017).

 

Accordingly, the servicer's motion to dismiss was granted, and the borrower's amended complaint was dismissed with prejudice.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, May 26, 2017

FYI: 2nd Cir Upholds Dismissal of Data Breach Action for Lack of Standing, Distinguishes 7th Cir Rulings

The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of a "data breach" lawsuit against a retailer, holding that the plaintiff lacked standing for failure to allege a cognizable injury.

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff made credit card purchases at the retail store and, two weeks later, her credit card information was fraudulently presented to make purchases in a foreign country. The plaintiff immediately cancelled her credit card and the fraudulent charges were not incurred on the card, nor was she liable for them.  

 

Shortly thereafter, the retailer issued a press release concerning a possible data breach in its computer system that involved the theft of customers' credit card and debit card data and later confirmed the breach. The retailer offered twelve months of identity protection and credit monitoring services to affected customers.

 

The plaintiff sued the retailer alleging breach of implied contract and New York's deceptive business practices act, N.Y. General Business Law § 349, and the retailer filed a motion to dismiss.

 

The trial court granted the motion to dismiss holding that the plaintiff's allegations did not establish Article III standing because she did not incur any actual charges on her credit card and she did not allege with any specificity that she had spent time or money monitoring her credit to prevent identity theft or fraudulent credit activity.   The plaintiff appealed from the dismissal.

 

On appeal, the Second Circuit explained that Article III standing requires that a plaintiff allege an injury that is "concrete, particularized, and actual or imminent; fairly traceable to the challenged action; and redressable by a favorable ruling." 

 

The plaintiff's theory of liability asserted that she faced a risk of future identity fraud, and that she had lost time and money resolving attempted fraudulent charges and monitoring her credit.  The Second Circuit found that such a "future injury" had to be "certainly impending," not speculative.

 

The Court pointed out that the plaintiff's credit card had been cancelled, such that no further fraudulent charges were possible, and that none of her personal identifying information, such as her birth date or Social Security number were alleged to be stolen, such future identity theft was not alleged.

 

In addition, the plaintiff admitted that she had not paid any fraudulent charges, and she did not alleged any specific facts about the time or effort she purportedly spent monitoring her credit. Instead, the Court noted, she made general allegations about consumers expending "considerable time" on credit monitoring to avoid fraud and asserted class damages and did not seek leave to amend her complaint to add more specific allegations to sustain her claims.

 

The Second Circuit found the plaintiff's allegations insufficient to establish concrete, particularized injury, and therefore that the plaintiff failed to achieve Article III standing.

 

The Court noted that the plaintiff's lack of sufficient allegations distinguished her complaint from other retailer data breach cases, such as Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688 (7th Cir. 2015), and Lewert v. P.F. Chang's China Bistro, Inc., 819 F.3d 963 (7th Cir. 2016), in which the personal information of the class members was stolen such that a risk of future identity theft was possible, and the named plaintiffs asserted specific factual injuries concerning their expenses to monitor their credit reports for fraudulent activity. In each of those cases, the Seventh Circuit found that the plaintiffs had established Article III standing as their allegations supported the conclusion that their future informational injuries were "certainly impending."

 

Accordingly, the trial court's order granting the defendant retailer's motion to dismiss was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, May 24, 2017

FYI: 8th Cir Holds Removal Proper Where Absence of CAFA Jurisdiction Not "Established to a Legal Certainty"

The U.S. Court of Appeals for the Eighth Circuit recently held that the requirements for the federal Class Action Fairness Act ("CAFA") were met and the matter was properly removed to federal court, where the plaintiffs could not "establish to a legal certainty" that their claims were for less than the requisite amount. 

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff insureds ("Insureds") purchased automobile insurance from the insurer ("Insurer"). 

 

The Insureds' policies required deductible payments of $100 for medical expense payments and $200 for economic loss payments.  Both policies provided only the minimum coverage required by Minnesota law: $20,000 for medical expenses, and $20,000 for economic losses.

 

The Insureds both suffered covered losses and incurred more than $20,100 in medical expenses as a result. Because their policies included the $100 deductible for medical expense payments and a maximum coverage of $20,000, each insured received a payment of just $19,900 from the Insurer.

 

The Insureds subsequently filed suit in Minnesota state court alleging that the Insurer's practice of selling policies with deductibles which reduced benefit payments below $20,000 for medical expenses and for economic losses violated Minnesota law.  The Insureds sought to represent a class of all similarly situated individuals.

 

The Insurer timely removed the case to federal court, and the Insurers moved to remand to state court on the ground that CAFA's jurisdictional requirements were not met because the amount in controversy did not exceed $5,000,000. After the trial court denied the motion to remand, the Insurer moved to dismiss the case for failure to state a cause of action, which motion was granted.  The Insureds appealed.

 

On appeal, the Insureds first argued that the trial court should have remanded the case to state court because it lacked jurisdiction because the requirements of CAFA were not met.

 

As you may recall, under CAFA,  federal courts have original jurisdiction over class actions "where, among other things, 1) there is minimal diversity; 2) the proposed class contains at least 100 members; and 3) the amount in controversy is at least $5 million in the aggregate."

 

The Insureds argued that the trial court erred when it determined that the amount in controversy exceeded $5 million because as plaintiffs were "the master of the complaint," and the trial court therefore should have restricted its analysis of the amount in controversy to what could be recovered by the class of individuals identified in the complaint, which was only individuals who had actually made claims for covered losses and were paid less than the statutory minimum.

 

The Insurer stated some six hundred individuals fell within that class.  However, when the trial court calculated the amount in controversy, it relied on premiums collected on all the Insurer's policies which included the challenged deductibles, regardless of whether the policyholders had made claims which led to application of the deductibles.  The Insureds argued this figure was overinclusive.

 

In ruling against the Insureds, the Eighth Circuit first noted that where the party seeking to remove has shown CAFA's jurisdictional minimum by a preponderance of the evidence, "remand is only appropriate if the plaintiff can establish to a legal certainty that the claim is for less than the requisite amount."

 

The Eighth Circuit then held that the Insureds "failed to show that it is legally impossible for them to recover more than $5,000,000. While they put [the Insurer's] sales practices at issue and seek a refund of their premium payments, they have not offered evidence to establish the amount they collectively paid in premiums. Without such information, we cannot determine whether it would be legally impossible for them to recover $5,000,000. We therefore conclude that the district court properly denied the motion for remand."

 

The Eighth Circuit also affirmed the trial court's ruling granting the Insurer's motion to dismiss, finding that the Insured did not allege a violation of the Minnesota No Fault Act. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, May 21, 2017

FYI: SCOTUS Holds Cities Have Standing Under FHA for "Subprime Nuisance" Claims

The Supreme Court of the United States recently held that a city qualifies as an "aggrieved person" under the federal Fair Housing Act, 42 U.S.C. § 3601 et seq. ("FHA") and, thus that the plaintiff city in this action had standing to assert claims under the FHA against banks the city believed were engaging in unlawful discriminatory lending practices. 

 

According to the City, the unlawful lending practices caused, among other damages, a disproportionate number of foreclosures and vacancies in majority-minority neighborhoods, which impaired the City's effort to assure racial integration, diminished the city's property-tax revenue, and increased demand for police, fire, and other municipal services.  The Court concluded that such alleged damages are within the "zone of interests" designed to be protected by the FHA, and the city had the right to assert its claims. 

 

The Court also concluded that although the alleged damaging consequences of the banks' supposed discriminatory lending practices were foreseeable, that, alone, was insufficient for the city to establish proximate cause under the FHA, as required. 

 

The Court remanded the case to the trial court for that court to establish the parameters for sufficiently demonstrating proximate cause.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, the FHA makes it unlawful to "discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race . . . ." See 42 U. S. C. §3604(b).  The statute also prohibits "any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race . . . ." See 42 U.S.C. §3605(a).

 

The FHA allows any "aggrieved person" to file a civil action seeking damages for a violation of the statute. See 42 U.S.C. §§3613(a)(1)(A), 3613(c)(1).  It defines an "aggrieved person" to include "any person who . . . claims to have been injured by a discriminatory housing practice." 42 U.S.C. §3602(i).

 

Here, the city sued two different banks, alleging that they intentionally issued riskier mortgages on less favorable terms to minority customers than they issued to similarly-situated white, non-Latino customers, in violation of 42 U.S.C. §§3604(b) and 3605(a).

 

The city alleged that the discriminatory practices "adversely impacted the racial composition of the city," "impaired the city's goals to assure racial integration and desegregation," "frustrate[d] the city's longstanding and active interest in promoting fair housing and securing the benefits of an integrated community," and disproportionately "cause[d] foreclosures and vacancies in minority communities." The city further alleged that the increased foreclosures and vacancies caused (1) a reduction of the property tax revenues to the city, and (2) the city to spend more on municipal services that it provided for the vacant and dangerous properties.

 

The banks moved to dismiss the complaints, contending that the injuries the city alleged did not fall within the zone of interests the FHA was designed to protect and, as a result, the city does not qualify as an "aggrieved person" under the FHA.  The second argument the banks made in support of dismissing the complaints was that the city had not adequately alleged a proximate cause connection between the conduct complained of and the alleged damages.

 

The trial court granted the banks' motions to dismiss.  On appeal, the Eleventh Circuit reversed the trial court, finding that the city qualified as an aggrieved person under the FHA, and that the complaints adequately established proximate cause by alleging the alleged damages were foreseeable.

 

On appeal, the Supreme Court analyzed the two issues addressed by the Eleventh Circuit: (1) whether the city qualified as an aggrieved person under the FHA, and (2) what a plaintiff needed to establish in order to satisfy the proximate cause requirement of its claim. 

 

As to the first issue, the Supreme Court, relying on its own precedent, concluded that the definition of "person aggrieved" in the original version of the FHA "showed 'a congressional intention to define standing as broadly as is permitted by Article III of the Constitution,'" and that the FHA permits suits by parties similarly situated to the city. The Court then determined that "Congress did not materially alter the definition of person 'aggrieved' when it reenacted the current version" of the FHA.

 

The Court referenced several similar cases in which it allowed entities and/or organizations to bring claims under the FHA alleging discriminatory lending practices that allegedly caused the same damages the city alleged in this matter.  The Supreme Court relied on those prior cases to provide examples of the "zone of interests" the FHA protects. 

 

In comparing those cases to the City's allegations, the Court determined that the city's allegations of reduced property values, diminished property-tax revenues, and increased demand for municipal services were all within the protected zone of interests, and that stare decisis compelled the Court's adherence to those precedents.  As a result, the Court concluded the city was entitled to bring its claims against the banks under the FHA.

 

As to the second issue of proximate cause, the Court concluded that the Eleventh Circuit erred in ruling that the city's complaints met the FHA's proximate-cause requirement based solely on the finding that the alleged financial injuries were foreseeable results of the banks' misconduct.  According to the Court, foreseeability, standing alone, is insufficient to establish the required proximate cause element of an FHA claim.

 

The Supreme Court first established that a claim under the FHA is akin to a tort claim, which requires the plaintiff to establish the defendant's alleged conduct proximately caused plaintiff's alleged damages. According to the Court, alleged injuries that are "too remote" from the alleged unlawful conduct will not satisfy the requirement.

 

In attempting to define proximate cause, the Supreme Court held that the FHA proximate cause analysis addresses "whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits." 

 

The Court then took issue with the Eleventh Circuit's holding that "the proper standard for proximate cause is based on foreseeability."  According to the Court, "in the context of the FHA, foreseeability alone does not ensure the close connection that proximate cause requires. The housing market is interconnected with economic and social life. A violation of the FHA may, therefore, 'be expected to cause ripples of harm to flow' far beyond the defendant's misconduct."

 

The Supreme Court held that, under the FHA, proximate cause "requires some direct relation between the injury asserted and the injurious conduct alleged." 

 

The Court, however, declined the opportunity to set the precise boundaries of proximate cause under the FHA.  According the Supreme Court, the Eleventh Circuit used the wrong standard, such that the Supreme Court did not have the benefit of its judgment on how the established principles apply to the FHA. 

 

The Supreme Court concluded that it should be the lower courts who establish the contours of proximate cause under the FHA.  Accordingly, the Court reversed the Eleventh Circuit's ruling and remanded the case to the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, May 19, 2017

FYI: 4th Cir Vacates $11MM FCRA Class Action Judgment Citing Spokeo

Relying on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the U.S. Court of Appeals for the Fourth Circuit recently vacated and remanded for dismissal a trial court's summary judgment ruling in favor of the plaintiff in an $11 million, 69,000 member class action under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (FCRA), where the defendant credit reporting agency listed the name of a defunct credit card issuer instead of the name of the servicer as the source of information on the plaintiff's credit report.

 

In so ruling, the Fourth Circuit held that the plaintiff had not suffered an injury-in-fact arising from alleged incomplete or incorrect credit report information, and thus had not satisfied the constitutional standing requirements to pursue a claim.

 

A copy of the opinion is available at:  Link to Opinion

 

During a background check for security clearance the plaintiff claimed that he first discovered that his cousin had opened a credit card in his name and had run up a substantial balance. The plaintiff requested credit reports from three credit reporting agencies to clear up the problem.

 

One of those reports listed the tradeline under the name of the original creditor with a P.O. Box address. Plaintiff sent letters to the original creditor requesting verification of the debt and received a response on the creditor's letterhead along with a statement showing the outstanding balance and a copy of the online credit card application with his name and social security number.

 

The plaintiff then wrote to the creditor requesting it stop reporting the account as inaccurate but did not receive a response. He then contacted the credit reporting agency directly to make the same request but without result.

 

The plaintiff alleged that that caused him stress and wasted his time, but the credit reporting error not affect his security clearance, which was approved.

 

Later, the account was deleted from his credit file. The original creditor had gone out of business during the 2008 financial crises and the FDIC had become the receiver and appointed a servicing company to collect the outstanding balances on the portfolio of accounts. The servicer conducted its work using the original creditor's name, phone number, and website and furnished account information to credit reporting agencies under the original creditor's name so as not to be confusing to account holders who might not recognize the name of the servicer but would know the name of the creditor with whom they had opened their accounts.

 

The plaintiff sued the servicer and the credit reporting agency asserting class claims and individual claims alleging that they violated the FCRA by failing to include the servicer's name in the tradelines as the source of the information.

 

The trial court certified the class, and granted the plaintiff's motion for summary judgment explaining that it was objectively unreasonable to exclude the servicer's name from the tradeline. The trial court denied the credit reporting agency's motion for summary judgment reasoning that the FCRA created "a statutory right to receive the sources of information for one's credit report" so that if a source is not disclosed, the violated right creates "a sufficient injury-in-fact for constitutional standing." The parties stipulated to damages of $11.7 million for the class and the credit reporting agency appealed.

 

On appeal, the Fourth Circuit pointed out that the trial court failed to analyze whether the injury was specific and concrete, as Spokeo requires, but merely concluded that any violation of the statute was sufficient to create an injury-in-fact.

 

The Appellate Court analyzed the holding in Spokeo explaining that the injury-in-fact requirement is not automatically satisfied where a statute grants a right and authorizes a person to "vindicate that right" but the person does not have any concrete harm. Put another way, a plaintiff cannot allege a "bare procedural violation, divorced from any concrete harm" and still gain standing. The Appellate Court concluded, based on Spokeo, that "a technical violation of the FCRA may not rise to the level of an injury in fact for constitutional purposes."

 

The Fourth Circuit pointed out that this conclusion was in agreement with the D.C. Circuit's conclusion that "a plaintiff suffers a concrete informational injury where he is denied access to information required to be disclosed by statute, and he suffers, by being denied access to that information, the type of harm Congress sought to prevent by requiring disclosure."

 

Applying the reasoning in Spokeo, the Fourth Circuit found that the plaintiff had not suffered a cognizable and specific injury, even an intangible "informational injury", where the credit reporting agency did not report the name of the servicer for the tradeline in addition to the creditor.

 

The Appellate Court also pointed out that the plaintiff had failed to demonstrate how the exclusion of the servicer's name would have made any difference in the fairness or accuracy of his credit report or the efficiency of resolving his credit dispute ,and rejected the plaintiff's argument that there was value in "knowing who it is you're dealing with" or that the servicer was hiding who is really was.

 

Instead, the Fourth Circuit found that the servicer name missing from the credit report did not have any practical effect on plaintiff. Thus, the Appellate Court concluded that the plaintiff had merely alleged a statutory violation without concrete harm.

 

The Fourth Circuit held, contrary to the trial court's holding, that "a statutory violation alone does not create a concrete informational injury sufficient to support standing," rather, it must create a "real harm with an adverse effect."

 

Therefore, the Appellate Court held that the plaintiff failed to assert Article III standing, and the trial court's holding in favor of the plaintiff was vacated and the case was remanded to the trial court for dismissal.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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Financial Services Law Updates

 

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Wednesday, May 17, 2017

FYI: MD Ala Holds Servicer Did Not Violate Discharge By Sending Periodic Statements, NOI, Delinquency Notices, Hazard Ins Notices

The U.S. Bankruptcy Court for the Middle District of Alabama recently held that a mortgage servicer did not violate the discharge injunction in 11 U.S.C. § 524, by sending the discharged borrowers monthly mortgage statements, delinquency notices, notices concerning hazard insurance, and a notice of intent to foreclose.

 

Moreover, because the borrowers based their claims for violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") on the violation of the discharge injunction, the Court also dismissed their FDCPA claims, with prejudice.

 

A copy of the opinion is attached.

 

In August 2010, the borrowers ("Borrowers") filed a petition in bankruptcy pursuant to Chapter 7 of the Bankruptcy Code.  In their petition, the Borrowers reported a foreclosure action in their Statement of Financial Affairs but inaccurately stated its status as having been disposed by way of a judgment.  In fact, a foreclosure action was filed against the Borrowers in state court but it was still pending at the time they filed their Chapter 7 petition. 

 

Moreover, the Borrowers made no mention of the property in their Statement of Intention.  Essentially, the Borrowers' petition indicated that they were no longer the owners of the mortgaged property, which was inaccurate.

 

In October 2010, the prior servicer filed a motion for relief from automatic stay.  The Court granted the motion in November 2010.  Subsequently, the Borrowers received a discharge in December 2010.

 

In December 2016, Borrowers filed a complaint alleging that their new mortgage servicer ("Servicer") violated the discharge injunction and the FDCPA, when it mailed them monthly mortgage statements, delinquency notices, notices of lender placed hazard insurance, and a Notice of Intent to Foreclose.  The Borrowers alleged that the Servicer "had absolutely no legitimate reason to correspond with [them] regarding the Property" because they allegedly vacated the property before filing bankruptcy.

 

In rejecting the Borrowers' arguments, the Court held "that acts reasonably taken to service a mortgage or to foreclose a mortgage [did] not violate the discharge injunction, even if the debtor discharged his personal liability on the indebtedness secured by the mortgage." 

 

According to the Court, the Servicer's communications did not violate the discharge injunction because a creditor has a right to foreclose a mortgage after discharge.  Because the Servicer was required to give the debtor certain notices either under the terms of the mortgage or applicable law, "it necessarily follows that the giving of such notices [did] not violate the discharge injunction."

 

Moreover, the Court noted, until the time the mortgage is foreclosed, and for a period thereafter, a debtor has a right to redeem the property from the creditor upon the payment of the amount due.  Therefore, the Court held that a creditor who did not advise the debtor as to how much is due on the mortgage impinged upon the debtor's right of redemption.

 

Additionally, the Court stated that debtors should not be permitted to "game the system" where the creditors are found to violate the discharge injunction if they gave various notices, but violate state and federal law if they do not. 

 

Therefore, the Court concluded that "[a] creditor who acts reasonably and in good faith should not be placed in the horns of a dilemma."  As the Court explained, "[i]f the act of providing required notices is unlawful, the mortgagee's right to foreclose is destroyed and, by extension, the mortgage itself is destroyed as well."

 

However, the Court was careful to note that a servicer can violate the discharge injunction if it did something in addition to routine mortgage servicing or foreclosure processing to prove that it "intended" to violate the discharge injunction.  But here, according to the Court, the Borrowers failed to allege that the Servicer did anything beyond routine mortgage loan servicing.

 

In addition, the fact that the Borrowers allegedly moved out of the property before filing bankruptcy, the Court noted, "did not effect a transfer of title to the mortgagee, nor did it change the status of their obligation under the mortgage."  Thus, the Court held that the Servicer had a "legitimate reason" to contact the Borrowers about the mortgage servicing and foreclosure. 

 

Because the Borrowers based their FDCPA claims on a violation of the discharge injunction, the Court held that the Borrowers failed to allege any violation of the FDCPA.

 

Accordingly, the Court granted the Servicer's motion to dismiss the Borrowers' allegations with prejudice.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, May 16, 2017

FYI: Cal App Ct (3rd Dist) Holds Loan Mod Denial Letter Allowing Only 15 Days to Appeal Was "Material Violation" of HOBR

The Appellate Court of California, Third District, recently held that a mortgage servicer violated California's Homeowner Bill of Rights ("HOBR"), Civ. Code § 2923.6(d), when it sent the borrower a loan modification denial letter stating that the homeowner had only 15 days to appeal the denial.

 

In so ruling, the Appellate Court held that the servicer's denial letter was a material violation of section 2923.6, and therefore the homeowner alleged a valid cause of action for injunctive relief under section 2924.12.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrower ("Borrower") defaulted on his home mortgage and a notice of default was recorded.  Borrower submitted a complete application for a loan modification to the mortgage servicer ("Servicer") and asserted a significant change in financial conditions.  The Servicer denied Borrower's request for a loan modification.  The Servicer's denial letter stated that Borrower had 15 days to file an appeal of the decision.

 

As you may recall, section 2923.6(d) provides:

 

If the borrower's application for a first lien loan modification is denied, the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer's determination was in error.

 

Section 2923.6(f)(1) states, in relevant part:

 

Following the denial of a first lien loan modification application, the mortgage servicer shall send a written notice to the borrower identifying the reasons for denial, including the following … The amount of time from the date of the denial letter in which the borrower may request an appeal of the denial of the first lien loan modification and instructions regarding how to appeal the denial.

 

The borrower filed this action seeking injunctive relief.  In his complaint, Borrower alleged that the Servicer's denial letter was a material violation of section 2923.6(d), because it gave him only 15 days to appeal the denial, instead of 30 days, and therefore the trustee's sale could not legally proceed.

 

As you may recall, section 2924.12 allows for injunctive relief if there is a "material violation" of any of various statutes, including section 2923.6.  Thus, Borrower's complaint must allege a material violation of section 2923.6 to obtain injunctive relief.

 

The Servicer demurred to the complaint, arguing among other things that section 2923.6 prohibited the recording of a notice of default or notice of sale, or conducting a sale, unless certain requirements are met.  Because the Servicer did not actually conduct the sale within the appeal period, it argued that its denial letter did not violate section 2923.6.  The trial court sustained the Servicer's demurrer without leave to amend.

 

On appeal, Borrower argued that by sending a denial letter that purported to give him only 15 days to file an appeal, the Servicer committed a material violation of section 2923.6, because subdivision (f) of that section provides that such a denial letter must include "[t]he amount of time from the date of the denial in which the borrower may request an appeal," and subdivision (d) of that section specifies that "the borrower shall have at least 30 days from the date of the written denial to appeal the denial."

 

Essentially, Borrower argued that a denial letter that provides a period of time that is less than the 30 day minimum the law requires violates section 2923.6 and is ineffective.  Therefore, the Borrower argued, an injunction can issue under section 2924.12 to enjoin any trustee's sale until that violation is corrected by the issuance of a new denial letter that set forth a legally adequate period for appeal.

 

Borrower also argued that he was not obligated to file his notice of appeal to the denial of the loan modification until the Servicer provided a denial letter that fully complies in all material aspects with the mandates of section 2923.6.

 

The Servicer argued that it did not violate section 2923.6(f) because that subdivision requires only that the denial letter include "[t]he amount of time from the date of the denial letter in which the borrower may request an appeal," and the denial letter here did so – even if the amount of time specified in the letter was less than the minimum amount of time allowed by section 2923.6(d).

 

The Servicer further argued that it did not violate section 2923.6 because a trustee's sale was not held within the 30 day appeal period provided by subdivision (d), prohibited by both subdivision (c) of the statute – which applies while a "complete first lien loan modification application is pending" – and subdivision (e) of the statute – which applies once "the borrower's application for a first lien loan modification is denied."

 

Additionally, the Servicer argued that Borrower did not file an appeal in the 30 day statutory period, and thus, even if the denial letter was deficient, Borrower was not prejudiced by the letter.  

 

The Appellate Court rejected the Servicer's arguments, and held that section 2923.6 required the Servicer to advise Borrower in the denial letter how much time Borrower had to appeal.  And, the Court held, HOBR required the Servicer to give Borrow at least 30 days to appeal.  Thus, the Court held, to comply with the law, the denial letter must inform Borrower of an appeal period that is at least 30 days in length. 

 

In this case, the Servicer's denial letter did not comply with the law because it advised Borrower he had only 15 days to appeal.  Because the denial letter did not give Borrower the full amount of time to appeal provided by law, the Appellate Court held that Borrower's right to appeal was effectively diminished as a result.  Thus, the Court held, the Servicer's denial latter was a material violation of section 2923.6.

 

Moreover, the Appellate Court held that Borrower's failure to allege that the Servicer conducted a trial sale within the 30 day appeal period established only that Borrower did not allege a violation of section 2923.6(c) or (e).  But here, according to the Appellate Court, it was enough that Borrower alleged a violation of the 30 day appeal provisions of section 2923.6(d) and (f).

 

Relatedly, because the Appellate Court concluded that the Servicer's denial letter was a material violation of section 2923.6, Borrower was entitled to relief under section 2924.12. 

 

As you may recall, section 2924.12(a) provides that "[i]f a trustee's deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section … 2923.6" and "[a]ny injunction shall remain in place and any trustee's sale shall be enjoined until the court determines that the mortgage Lender, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief." 

 

Thus, according to the Appellate Court, the Borrower's failure to file an appeal from denial of his application did not invalidate his claim.  The Court held that nothing in the statutory scheme denied Borrower the right to relief under section 2924.12 because he did not file an appeal sooner.  Therefore, the Court held, Borrower's failure to file an appeal was irrelevant.

 

Accordingly, the Appellate Court reversed and remanded the case with instruction to vacate the trial court's order sustaining the Servicer's demurrer, and to enter a new order denying the demurrer.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments