Saturday, February 14, 2015

FYI: SD Fla Confirms Communications Sent Only to Debtor's Counsel Not Actionable Under FDCPA

The U.S. District Court for the Southern District of Florida recently dismissed with prejudice a borrower’s action under both the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692(e)(2) and (f)(1) (“FDCPA”) and the Florida Consumer Collection Practices Act, Fla. Stat. § 559.72(9) (“FCCPA”), confirming that communications directly solely to a debtor’s attorney are not actionable.  A copy of the opinion is attached.

 

The borrower alleged that the defendant mortgage loan servicer violated both the FDCPA and FCCPA by sending a payoff statement to the borrower’s counsel, which showed both a total amount due and interest rate greater than what was reflected in the final judgment of foreclosure.

 

The borrower argued that the act of sending the payoff statement with allegedly incorrect information not reflected in the foreclosure judgment violated FDCPA subsection 1692e(2), which prohibits a debt collector from making a “false representation of … the character, amount, or legal status of any debt.”

 

In addition, the borrower argued that the payoff statement also violated subsection 1692f(1) of the FDCPA, which prohibits a debt collector from attempting to “collect any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”

 

The Court noted that under the Eleventh Circuit’s “least sophisticated consumer” test, a communication might violate the FDCPA if the language used by the debt collector tends to mislead the least sophisticated recipients of a debt collector’s letters and telephone calls.

 

However, the Court held, when the communication at issue is sent not to a consumer, but rather only to his or her attorney, this test is not necessary in order to carry out the FDCPA’s purpose because the attorney is presumably not unsophisticated, but well trained and educated.

 

Agreeing with other courts that have not applied the “least sophisticated consumer” test when communications are directed to the consumer’s attorney, and instead have found that such communications are not actionable, the Court concluded that the communication at issue did not give rise to a violation of the FDCPA.

 

Turning to the state-law FCCPA claim, the Court held that because the FCCPA itself provides that great weight must be given to federal courts’ interpretation of the FDCPA, and the borrower’s FDCPA claim was not actionable, the FCCPA claim failed as well.

 

 

Ralph T. Wutscher
McGinnis 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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Friday, February 13, 2015

FYI: WA Sup Ct Rules Guarantor Not Protected From Deficiency Judgments Following Nonjudicial Foreclosure of Property Not Owned By Guarantor

The Supreme Court of the State of Washington recently concluded that, under Washington’s Deed of Trust Act (“WDTA”), guarantors of commercial loans whose own property has not been foreclosed are not protected from deficiency judgments after the borrower’s property has been nonjudicially foreclosed. 

 

A copy of the Court’s opinion is available at:  http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=900787MAJ.

 

Under the WDTA, a lender has the option of pursuing a judicial or nonjudicial foreclosure.  Subject to a few exceptions, however, if the lender pursues a nonjudicial foreclosure, the lender’s recovery is limited to what is recouped from the foreclosure. 

 

This case is a consolidation of two different cases with nearly identical facts. In both cases, unrelated limited liability companies borrowed money from the same bank.  The loans were secured with deeds of trust encumbering property of the LLCs.  In addition, individuals affiliated with the LLCs guaranteed the loans but did not grant a separate deed of trust to secure the guaranty. 

 

Subsequently, the FDIC assigned the bank’s interest in the loans, the deeds of trust and the guaranties to a new bank.  The new bank initiated nonjudicial foreclosure proceedings and had the properties sold by a trustee.  The new bank was the successful purchaser at the sales and then sought the deficiency amount from the individual guarantors.  The trial court granted the individuals’ motions for summary judgment, but the Court of Appeals reversed. 

 

The Washington Supreme Court held that the WDTA did not protect the guarantors from deficiency judgments because the guarantors had not secured their guaranties by granting deeds of trust and, even if they had, the foreclosed properties were not properties of the guarantors. 

 

The Washington Supreme Court carefully analyzed the language of the WDTA to conclude that the exceptions to the WDTA that protect against deficiency judgments did not apply to the personal guarantors in these cases.  Under the WDTA, “a deficiency judgment shall not be obtained on the obligations secured by a deed of trust against any borrower, grantor, or guarantor after a trustee’s sale under that deed of trust.”  RCW 61.24.100(1).

The Court interpreted the exceptions contained in the WDTA to conclude “the [W]DTA extends protection from deficiency judgments – with some exceptions – to a guarantor who grants a deed of trust to secure its guaranty of a commercial loan when the property burdened by the guarantor’s deed of trust is nonjudicially foreclosed.” 

 

The Court further held that “a guarantor of a commercial loan must secure its guaranty by granting a deed of trust in order to be protected from deficiency judgments when the property burdened by its deed of trust is nonjudicially foreclosed.”

 

The Court held that the guarantors were not protected from deficiency judgments under the WDTA for two reasons: they did not secure their guaranties by granting deeds of trust, and the foreclosed properties were not the properties of the guarantors, but instead the properties of the LLCs that had granted deeds of trusts. 

 

Because the guarantors were not protected from deficiency judgments, the Washington Supreme Court concluded that the new bank could seek deficiency judgments against the guarantors. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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Thursday, February 12, 2015

FYI: Cal App Ct Rejects Challenges to Notice of Default, Based on Timing of Substitution of Trustee and Lack of Affidavit of Mailing

The California Court of Appeal, First District, recently affirmed a trial court’s dismissal of allegations that a notice of default was void.  The Appellate Court rejected the borrowers’ argument that a notice of default is void when executed by a successor trustee prior to that successor trustee having been substituted in as trustee under the deed of trust. 

 

The Appellate Court also rejected the borrowers’ contention that the recorded substitution of trustee was void because it did not include an affidavit of mailing showing it was mailed to the trustee of record or other persons, if any, who may have requested notice of default and notice of sale, explaining that parties to a deed of trust may agree to a form of substitution of trustee other than that provided in Calif. Civil Code section 2934a. 

 

A copy of the opinion is available at:  http://www.courts.ca.gov/opinions/documents/A139055.PDF

 

As you may recall, in order to initiate the foreclosure process in California, “[t]he trustee, mortgagee, or beneficiary, or any of their authorized agents” must first record a notice of default. See Calif. Civ. Code § 2924(a)(1).  The notice of default must identify the deed of trust “by stating the name or names of the trustor or trustors” and provide a “statement that a breach of the obligation for which the mortgage or transfer in trust is security has occurred” and a “statement setting forth the nature of each breach actually known to the beneficiary and of his or her election to sell or cause to be sold the property to satisfy [the] obligation . . . that is in default.” Calif. Civil Code § 2924(a)(1)(A)-(C).)

 

In 2005, the borrowers obtained a loan for $396,200 to purchase a home.  The borrowers executed and recorded a deed of trust in favor of the lender as the beneficiary.  The loan and deed of trust were subsequently assigned to another entity (“Bank”).

 

On September 7, 2010, the successor trustee executed and recorded a notice of default against the property.  However, the Bank did not execute a substitution of trustee appointing the successor trustee as the trustee under the deed of trust until September 24, 2010.  And, the substitution of trustee was not recorded until December 9, 2010, the same day that the successor trustee recorded a notice of sale.

 

On June 6, 2011, the property was sold to the Bank for an amount far less than what was then owed by the borrowers on the loan.

 

The borrowers filed a complaint to set aside the foreclosure sale.  The borrowers attempted to assert claims for wrongful foreclosure, intentional and negligent fraud, breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, negligence, unfair business practices, cancellation of deed upon sale, quiet title, declaratory relief, wrongful eviction, willful lockout, and injunctive relief. 

 

The borrowers argued that the foreclosure sale was void because the successor trustee had not been substituted in as trustee at the time it recorded the notice of default and therefore it lacked the authority to initiate the foreclosure proceedings. 

 

However, the borrowers did not allege that they had tendered, or were ready, willing, and able to tender, the amount owed on the loan at any time between the time the notice of default was recorded in early September and the foreclosure and sale that took place nine months later on June 6, 2011.

 

The trial court sustained the Bank’s demurrers to the complaint, reasoning that the borrowers failed to state a claim for wrongful foreclosure based on the timing of the successor trustee’s substitution as trustee “because a notice of default can be recorded before a notice of substitution of trustee.”  The trial court further held that where “the alleged wrongful foreclosure is the result of a defect in the required notice, the transaction is voidable, not void” and that in any further amendment to the complaint the borrowers would have to “allege sufficient facts of tender.”

 

As you may recall, the “traditional method” to challenge a nonjudicial foreclosure sale in California “is a suit in equity . . . to have the sale set aside and to have the title restored.”  Lona v. Citibank, N.A., 202 Cal.App.4th 89, 103 (2011).  Generally, the party contesting the foreclosure must prove:  “(1) the trustee . . . caused an illegal, fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a . . . deed of trust; (2) the party attacking the sale suffered prejudice or harm; and (3) the trustor . . . tenders the amount of the secured indebtedness or was excused from tendering.”  West v. JPMorgan Chase Bank, N.A., 214 Cal.App.4th 780, 800 (2013).

 

However, trustors attacking a void deed are “not required to meet any of the burdens imposed when, as a matter of equity, a party wishes to set aside a voidable deed.”  Dimock v. Emerald Properties, 81 Cal.App.4th 868, 878 (2000).  More specifically, the “distinction between a ‘void’ or ‘voidable’ nonjudicial foreclosure sale is simply whether the borrower, who is in default, must allege and prove a prerequisite tender of the amount due under the deed of trust and otherwise to show prejudice resulting from the defect, omission, or failure, before the sale will be set aside.  In deciding whether to require a showing of tender and prejudice, courts appear to focus on the nature and severity of the defect, omission or failure and its practical effect on the foreclosure process.”

 

The Appellate Court affirmed the trial court’s order of dismissal, and rejected the borrowers’ argument that the sale was void because the successor trustee did not yet hold the title of “trustee” as claimed on the notice of default, and was only formally named as trustee several weeks later, when the Bank executed a substitution of trustee naming the successor trustee as the trustee.

 

The Appellate Court first noted that a substitution of attorney may occur after a notice of default is recorded, but before a notice of sale is recorded.  See Calif. Civil Code § 2934a(c).  The Court found that the Bank complied with this procedure as authorized by the Legislature.  Accordingly, the Appellate Court determined that the ensuing trustee’s sale not either voidable or void.

 

The Appellate Court also determined that the successor trustee had the authority to execute the notice of default as the Banks’s agent.  The Court noted that Section 2924 authorizes a notice of default to be recorded by “the trustee, mortgagee, or beneficiary, or any of their authorized agents.”  The Court noted that nothing in the borrowers’ pleadings or judicially noticed documents suggests that the successor trustee was not authorized to act for the Bank, the beneficiary under the deed of trust.  See Calif. Civil Code § 2924(a)(1).

 

The Court held that the successor trustee’s substitution as trustee, which was executed within weeks of the successor trustee’s issuing the notice of default, “unmistakably evidences” an intent by the Bank to ratify the successor trustee’s authority to initiate the foreclosure proceedings.

 

Therefore, in order to avoid the effect of this ratification, the borrowers, as third parties, would be required to prove they were prejudiced by the successor trustee’s unauthorized actions. See Calif. Civil Code § 2313; Archdale v. American Internat. Specialty Lines Ins. Co., 154 Cal.App.4th 449, 480 (2007).  The Appellate Court noted that the borrowers had not alleged they suffered any prejudice.

 

The Appellate Court also rejected the borrowers’ argument that the recorded substitution of trustee, which is a single-page document, did not include an affidavit of mailing showing it was mailed to the trustee of record or other persons, if any, who may have requested notice of default and notice of sale under section 2924b. 

 

According to the borrowers, this failure to include an affidavit of mailing supposedly constituted a clear violation of section 2934a, subdivision (c), which supposedly invalidates the substitution of trustee.

 

In rejecting this argument, the Appellate Court explained that parties to a deed of trust may agree to a form of substitution of trustee other than that provided in Calif. Civil Code section 2934a.  See Jones v. First American Title Ins. Co., 107 Cal.App.4th 381, 390 (2003).  The Court then noted that the deed of trust entered into by the parties gave the Bank the option of substituting a successor trustee without the need to confirm that substitution with an affidavit:   “Lender, at its option, may from time to time appoint a successor trustee to any Trustee appointed hereunder by an instrument executed and acknowledged by Lender and recorded in the office of the Recorder of the county in which the Property is located.”

 

Finally, the Appellate Court held that the foreclosure sale was, at worst, voidable, not void.  The Court noted that the primary purpose of a notice of default is to provide notice of the amount in arrears and an opportunity to cure the default.  Therefore, in order for a defect in the notice of default to be material, it must cause prejudice.  Knapp v. Doherty, 23 Cal.App.4th 76, 99 (2004).

 

Accordingly, the Appellate Court affirmed the order of dismissal because the borrowers had not alleged that they were misled or prejudiced by the notice of default or that the information stated in the notice of default was erroneous.

 

 

 

Ralph T. Wutscher
McGinnis 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

 

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Wednesday, February 11, 2015

FYI: SD Fla Confirms Providing Tel Number to Creditor Imparts "Prior Express Consent" Under TCPA, Debt Collection Calls to Residential Land Lines Not Covered by TCPA

The U.S. District Court for the Southern District of Florida recently confirmed that, under the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (“TCPA”):  (1) providing a telephone number to a creditor "reasonably evidences prior express consent ... to be contacted at that number regarding the debt;” and (2) debt collection calls placed to residential land line number are excluded from the scope of the TCPA, and cannot support a TCPA claim.

 

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

 

The defendant bank issued a credit card to the plaintiff in 2005. The plaintiff provided his home telephone number when he applied for the card. The plaintiff failed to pay and the issuing bank sold the account, which was subsequently assigned several more times for collection.

 

The plaintiff’s complaint alleged that in the process of trying to collect on the debt since late 2011, defendants violated the federal Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., the federal Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, and the Florida Consumer Collection Practices Act (“FCCPA”).

 

The defendants moved for summary judgment.  The court granted summary judgment in favor of all of the defendants because the plaintiff consented to be called in connection with the credit card debt when he provided his home telephone number to the bank when he applied for the credit card.

 

The court added that the TCPA claim also failed as a matter of law because, even though the plaintiff alleged in his amended complaint that he received calls on his cellular telephone, his TCPA claim as pled referenced only the subsection dealing with residential telephone lines (47 USC 227(b)(1)(B)), and not the subsection which prohibits calls to cellular telephones without consent (47 USC 227(b)(1)(A)), and the Federal Communications Commission by rule, 47 C.F.R. § 64.1200(a)(3)(iii), excluded debt collection calls from coverage under subsection 227(b)(1)(B).

 

The court also granted summary judgment in favor of one of the collection agency defendants on the FDCPA claim, because the FDCPA requires the plaintiff to prove that he was the target of collection activity arising from a consumer debt, and plaintiff failed to provide any record evidence that the collector called him in connection with a consumer debt.

 

Finally, the court granted summary judgment in favor of all of the defendants on the state law FCCPA claim because, like the FDCPA, the FCCPA only applies to a consumer debt, and the plaintiff failed to provide any record evidence that he was called in connection with a consumer debt.

 

 

 

 

Ralph T. Wutscher
McGinnis 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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Monday, February 9, 2015

FYI: ED Pa Holds FDCPA's Class Action Recovery Limit Applies Per Action, Not Per Defendant

The U.S. District Court for the Eastern District of Pennsylvania recently held that the class action statutory damages provision under the federal Fair Debt Collections Practices Act, 15 U.S.C. 1692, et seq. (“FDCPA”) allowed a maximum recovery per action as opposed to per defendant.  A copy of the opinion is attached.

 

On March 6, 2013, the debtor (“Debtor”) filed an amended complaint-class action on her own behalf and on behalf of a purported class of similarly-situated debtors, alleging that the defendants (“Defendants”) violated various provisions of the FDCPA by sending a collection letter that was “a false, deceptive, and misleading representation or means in connection with the collection of a debt, and an unfair or unconscionable means to collect or attempt to collect a debt.” 

 

Specifically, Debtor’s contention was premised upon the representation made in Defendants’ collection letter that, if the consumer recipient agreed to pay a reduced amount to satisfy the debt, Defendants would stop applying interest to the debt, when Defendants were not actually applying interest to the debt.

 

By order dated December 23, 2014, the Court granted Debtor’s motion for class certification.  The class included all consumers in Pennsylvania to whom, from March 5, 2012, a continuing through the resolution of the action, Defendants sent a letter substantially corresponding to the collection letter attached to the amended complaint.

 

Debtor, on behalf of the certified-class, sought recovery in the maximum statutory damages award amount of $500,000 for class actions from each of the two Defendants, for a total of $1,000,000 in statutory damages.  Defendants filed a motion seeking a legal determination as to the statutory amount of damages available.

 

The District Court noted that the parties disagreed as to the correct interpretation of the FDCPA provision providing the maximum amount of statutory damages recoverable in a class action suit.  Defendants argued that the FDCPA limited the recovery of a class to a maximum of $500,000 per action, regardless of the number of named defendants.  Debtor argued that the statue permitted recovery on behalf of a class in the amount of $500,000 per defendant.

 

As you may recall, the FDCPA’s damages provision states:

 

(A) In the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000; or

(B) in the case of a class action, (i) such amount for each named plaintiff as could be recovered under subparagraph (A), and (ii) such amount as the court may allow for all other class members, without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector.

 

See 15 U.S.C. § 1692k(a)(2).

 

The Court recognized that, although the Third Circuit Court of Appeals had not addressed whether the FDCPA’s statutory limit for class actions provided a maximum amount of recovery per action as opposed to per defendant, the Third Circuit, along with numerous other courts, had found that the $1,000 statutory limit for individual plaintiff claims provided a maximum recovery per action in actions involving multiple defendants.  See e.g., Goodman v. People’s Bank, 209 F. App’x 111, 114 (3d Cir. 2006); Weiss v. Regal Collections, 385 F.3d 337, 340 (3d Cir. 2004). 

 

The District Court concluded that the Third Circuit’s interpretation of the similarly worded limit per action in individual FDCPA claims dictated a similar outcome with regard to the FDCPA class actions damages provision.

 

Further, the Court held that the plain meaning of the provision limiting individual actions suggested that Congress intended that there be a statutory maximum per “action” as opposed to per violation or per defendant. 

 

Thus, the Court concluded that the inclusion of the term “action” preceding the statutory maximum of $500,000 for class actions clearly denoted Congress’s intent that the $500,000 statutory maximum was per class action, not per defendant.

 

Accordingly, the Court granted Defendants’ motion in limine and ordered that the certified class would be limited to a total maximum statutory damages award of $500,000.

 

Ralph T. Wutscher
McGinnis 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

 

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