Thursday, June 11, 2015

FYI: 2nd Cir Holds Non-Bank Debt Collector Could Not Charge Usurious Fees or Interest Allowed Under Valid Contract Made By Bank Originator

The U.S. Court of Appeals for the Second Circuit recently reversed a district court’s ruling that federal National Bank Act preemption applicable to the loan originator allowed a non-bank consumer debt buyer to charge interest in excess of state usury limits. 

 

In so ruling, the Second Circuit noted that, “[a]lthough it is possible that usury laws might decrease the amount a national bank could charge for its consumer debt in certain states (i.e., those with firm usury limits, like New York), such an effect would not ‘significantly interfere’ with the exercise of a national bank power.” 

 

The Court did not address the “valid when made” doctrine.  Based on its ruling, the Court revived the consumer’s claims under the federal Fair Debt Collection Practices Act and state usury law. The Court also vacated the district court’s denial of the consumer’s motion for class certification.

 

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

 

The plaintiff obtained a credit card from a national bank in 2005. The following year, the bank’s credit card program was transferred to another national bank, at which point the consumer received a document amending the terms and conditions of her credit card agreement, which included a Delaware choice-of-law provision.

 

The consumer’s debt of approximately $5,000 was “charged-off” in 2008 as uncollectable, and the transferee bank sold the debt to an unaffiliated non-bank company specializing in the purchase of consumer debts.

 

In November of 2010, the non-bank purchaser’s affiliate and servicer of its consumer debt accounts sent the plaintiff a demand letter seeking to collect the balance owed plus interest at 27% per annum.

 

In 2011, the plaintiff filed a putative class action against the non-bank debt purchaser and its non-bank servicer, alleging by charging more than the 25% interest per year permitted by New York law, the defendants engaged in abusive and unfair debt collection practices in violation of the federal Fair Debt Collection Practices Act (“FDCPA”), and violated New York usury law.

 

The plaintiff moved to certify the class and the defendants moved for summary judgment, both of which were denied by the district court on September 30, 2013.  As to the defendants’ motion for summary judgment, the district court reasoned that genuine issues of material fact existed as to whether plaintiff received the cardholder agreement and change in terms, and whether the transferee bank had properly assigned the debt to the defendant non-bank debt purchaser.

 

As to the plaintiff’s motion for class certification, the district court reasoned that because the National Bank Act applied to defendants as assignees of a national bank, a class action was inappropriate and the proposed class failed to satisfy Federal Rule of Civil Procedure 23(a)’s commonality and typicality requirements.

 

In May of 2014, the parties stipulated to the entry of judgment in defendants’ favor for purposes of appeal. The stipulation included an agreement that the account was properly assigned to the defendants and that the plaintiff received the cardholder agreement and change in terms, thereby eliminating the two issues of material fact on which the district court had based its denial of the defendants’ motion for summary judgment. The district court approved the stipulation and the plaintiff appealed.

 

On appeal, the plaintiff argued that the district court committed error when it held that the federal National Bank Act (“NBA”) preempted plaintiff’s state law usury claim.

 

The Court first cited to U.S. Supreme Court and Second Circuit precedent on preemption, explaining that the federal preemption doctrine derives from the Supremacy Clause of the United States Constitution.  The Court further explained that “[p]reemption can generally occur in three ways: where Congress has expressly preempted state law, where Congress has legislated so comprehensively that federal law occupies an entire field of regulation and leaves no room for state law, or where federal law conflicts with state law.”

 

The Court went on to explain that the NBA expressly allows national banks to “charge on any loan … interest at the rate allowed by the laws of the State, Territory, or District where the bank is located.” See 12 U.S.C. § 85. The NBA also “provide[s] the exclusive cause of action” for usury claims against national banks, and thus preempts claims under state usury laws.

 

The defendants argued that, as assignees of a national bank, they were effectively covered by the NBA and could legally recover interest at the rate allowed by Delaware, the state where the assignor bank is headquartered.

 

The Second Circuit disagreed, reasoning that, while under certain circumstances preemption under the NBA could be extended to entities that are not national banks, in order for this exception to apply, the state law at issue must “significantly interfere with a national bank’s ability to exercise its powers” under the NBA.  For example, the Court noted that in most of the cases where the NBA has been extended to an unaffiliated non-national bank entity, the entity was acting on behalf of a national bank in the process of conducting the bank’s business.

 

The Second Circuit distinguished the actions of the defendants in the case at bar from agents acting on a national bank’s behalf, finding that the non-bank defendants here were acting on their own behalf in attempting to collect the plaintiff’s credit card debt. In so finding, the Court cited to guidance published by the Office of the Comptroller of the Currency (“OCC”), the federal agency responsible for chartering, regulating and supervising national banks, which clarified in an OCC Bulletin that third-party debt buyers are not agents or subsidiaries of a national bank for purposes of NBA preemption.

 

The Court further distinguished the case at bar from two Eighth Circuit decisions holding that the NBA preempted state law usury claims, which were relied upon by the district court and defendants.

 

In Krispin v. May Department Stores, 218 F. 3d 919 (8th Cir. 2000), the Eighth Circuit applied the NBA to preempt state law usury claims against a department store chain that issued credit cards assigned to a wholly-owned national bank. The Court explained that Krispin did not support the defendants’ preemption argument because, in Krispin, the department store chain assigned its credit card accounts to a wholly owned national bank and subsequently re-purchased the accounts, but the national bank retained an ownership interest in the accounts.

 

According to the Second Circuit, this led the Eighth Circuit in Krispin to conclude that that the real party in interest was the national bank. Unlike in Krispin, the Second Circuit noted, the national banks in the case at bar did not retain any ownership interest in the plaintiff’s account.

 

In Phipps v. FDIC, 417 F.3d 1006 (8th Cir. 2005), the plaintiffs sued under Missouri law to recover a “finder’s fee” paid to a third party entity upon the sale of mortgage loans. The Eighth Circuit in Phipps held that the fees constituted “interest” under the NBA, and held that the originating bank, not the assignee, was the real party in interest and the claims were preempted.

 

The Second Circuit reasoned that in Phipps, the national bank charged the interest or “finder’s fee,” while in the case at bar, the interest was charged to the plaintiff by the non-bank defendants after her account was sold to defendants. In addition, the Second Circuit noted, the non-bank entity in Phipps was an agent of the national bank and 12 C.F.R. § 7.1004(a) allows a national bank to use the services of and compensate non-employees for originating loans. In the case at bar, no such relationship existed between the non-bank defendants and the originating bank or its national bank transferee.

 

Turning to the issue of whether Delaware or New York law applied based on the choice-of-law provision in the underlying agreement, the Second Circuit declined to address the issue because it had not been ruled upon by the district court.

 

However, the Second Circuit rejected the plaintiff’s argument that by attempting to collect interest at a rate higher than New York law allows, the non-bank defendants supposedly made a false representation in violation of FDCPA subsections 1692e(2)(A), (5), (10) and 1692f(1).

 

The Court reasoned that the district court’s analysis was mistakenly based on its determination that the defendant non-bank entities were entitled to the same protections as the national bank from which they acquired the plaintiff’s credit card account.

 

In addition, the Second Circuit held that the district court mistakenly concluded that Delaware law applied if the plaintiff received the cardholder agreement and change in terms, but those facts were only established by stipulation by the parties for purposes of appeal. Because the district court never reached the issue of which state’s law applied, the Court vacated the district court’s judgment on the FDCPA claim.

 

The Court also vacated the district court’s denial of class certification because its analysis was based on the same ruling that the non-bank defendants were entitled to the same protection under the NBA as the originating bank.

 

Thus, the Second Circuit reversed the district court’s holding that the NBA preempted the plaintiff’s claims, vacated the district court’s judgment and denial of class certification, and remanded the case for further proceedings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

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Wednesday, June 10, 2015

FYI: Ill App Ct Rejects Borrower's Attempt to Undo Foreclosure, Holds Borrower Waived Proper Service of Process

The Illinois Appellate Court, First District, recently affirmed the dismissal of a borrower’s petition seeking to vacate a default judgment and order approving sale entered in a mortgage foreclosure action, holding that the borrower waived proper service of the foreclosure complaint.

 

A copy of the opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2015/1stDistrict/1141272.pdf

 

The mortgagee sued to foreclose its mortgage under the Illinois Mortgage Foreclosure Law in November of 2011. The borrower was served by substitute service shortly thereafter and, approximately 5 months thereafter, the mortgagee moved for entry of a default.

 

The borrower appeared at the hearing on the mortgagee’s motion for default, the mortgagee withdrew its motion, and the court gave the borrower an additional 28 days to respond to the complaint.  However, the borrower failed to do so, resulting in the eventual entry in July of 2012 of a default judgment of foreclosure.

 

In August of 2012, the borrower appeared through counsel, who filed a motion to reconsider and vacate the final judgment, attached to which was a copy of the borrower’s answer containing general denials and raising lack of standing and lack of proper service as defenses.

 

The borrower’s motion was never heard, however, and the collateral was sold at the judicial sale to the mortgagee as the highest bidder. The mortgagee moved to confirm the sale, but in November of 2012, the borrower objected to confirmation of the sale.

 

In mid-March of 2013, the trial court approved the sale, but shortly thereafter, the borrower moved to reconsider and vacate the order approving the sale.

 

In July of 2013, the borrower withdrew his motion, and thereafter filed a petition under section 2-1401 of the Illinois Code of Civil Procedure. The petition sought to vacate the default judgment of foreclosure and any subsequent order based thereon because (a) the borrower supposedly was not properly served with process; (b) the plaintiff mortgagee supposedly lacked standing to sue; (c) the trial court supposedly improperly failed to rule on a pending motion in violation of section 2-1203 of the Illinois Code of Civil Procedure; (d) the borrower was supposedly wrongfully evicted; and (e) the affidavit supporting the mortgagee’s motion for default judgment was supposedly insufficient.

 

In April of 2014, the trial court denied and struck the petition because:  (a) the petition was filed in violation of the court’s procedures governing mortgage foreclosures; (b) proper service of the borrower’s petition was not effectuated because the plaintiff mortgagee had not waived service; (c) the court lacked jurisdiction over the petition under U.S. Bank National Ass’n v. Prabhakaran, 2013 IL App (1st) 11124; and (d) the borrower waived any objection to personal jurisdiction 60 days after he participated in the case pursuant to section 15-1505.6(a)(ii) of the Illinois Mortgage Foreclosure Law, and he did not present any new facts that were undiscoverable with the action was initially filed.

 

The borrower appealed, arguing that:  (1) his petition should not have been stricken because it was not ripe for adjudication under People v. Laugharn, 233 Ill. 2d 318 (2009), which requires that a petition under section 2-1401 of the Illinois Code of Civil Procedure be pending for at least 30 days before adjudication; (2) the trial court lacked personal jurisdiction over him because he was not properly served; and (3) the petition should not have been dismissed on the merits.

 

The Appellate Court noted that section 2-1401 of the Illinois Code of Civil Procedure allows judgments to be challenged more than 30 days after they are entered, and requires that the petition allege: (1) the existence of a meritorious defense or claim; (2) due diligence in presenting the defense or claim to the circuit court in the original action; and (3) due diligence in filing the section 2-1401 petition for relief.

 

The Court also noted that the purpose of a section 2-1401 petition is to bring to the attention of the circuit court facts which, if known when the judgment was entered, would have precluded its entry. Such a petition must be filed within two years after the judgment is entered, unless the petition alleges the judgment is void.  Also, when a judgment is challenged because it is void, the petitioner does not need to show due diligence or allege the existence of meritorious defense.

 

Turning to the borrower’s arguments, the Appellate Court first found that it could not rule on whether the trial court adjudicated the borrower’s 2-1401 petition prematurely under Laugharn because the borrower failed to submit a proper record on appeal by providing either a bystander’s report or an agreed statement of facts as to the hearing on the borrower’s 2-1401 petition. The Court noted that the borrower, as the appellant, bears the burden of providing a sufficiently complete record to support his claims or error and, in the absence of such a record, the trial court’s order is presumed to be valid and supported by a sufficient factual basis.

 

Next, the Appellate Court rejected the borrower’s argument that he had not been properly served with process, finding that this defense was barred by section 15-1505.6 of the Illinois Mortgage Foreclosure Law, which required the borrower to challenge service of process no later than 60 days after the earlier of (a) filing an appearance or (b) participating in a hearing without filing an appearance. Because the borrower participated in the hearing held on May 8, 2012 and failed to challenge jurisdiction until he filed his answer on August 23, 2013, more than sixty days later, he waived his ability to challenge the court’s jurisdiction over him.

 

The Court pointed out that even if he had filed his petition in a timely fashion, he still waived objection to personal jurisdiction because (a) the objection was contained in an answer rather than in a motion to dismiss or motion to quash service of process as required by section 2-301 of the Illinois Code of Civil Procedure; and (b) it was unclear from the record on appeal, which only contained two pages from the borrower’s motion to reconsider and vacate the judgment, whether the borrower contested jurisdiction in that motion.  Based on the limited record before it, the only basis to vacate the judgment was that borrower’s attorney was not present at the hearing. Because the record was incomplete, the Appellate Court noted that the trial court’s judgment was presumptively correct.

 

Finally, the Appellate Court rejected the borrower’s argument that the petition should not have been dismissed on the merits.

 

The Court first found that that the borrower failed to show he had a meritorious defense because he only raised lack of standing in his answer, which was filed after the default judgment of foreclosure had been entered. The entry of default resulted in the borrower admitting that the plaintiff mortgagee had standing under Mortgage Electronic Registration Systems, Inc. v. Barnes, 406 Ill. App. 3d 1, 6-7 (2010), and the because the borrower forfeited his right to challenge standing, the Court did not even need to consider whether the plaintiff actually had standing, citing Nationwide Advantage Mortgage Co. v. Ortiz, 2012, IL App (1st) 112755, ¶¶’s 26, 40.

 

The Court next rejected the borrower’s argument that the order approving the sale was void because he filed his motion to vacate the judgment within 30 days after the judgment was entered as permitted by section 2-1301 of the Illinois Code of Civil Procedure. However, the motion included in the record on appeal was incomplete, containing only the last two pages, the prayer for relief, and the verification page, and was devoid of any citation to the specific code section under which the borrower sought relief.  Because the borrower failed to carry his burden on appeal to provide a sufficiently complete record to support his claims of error, the Appellate Court presumed that the trial court’s order was valid and had a sufficient factual basis.

 

The Appellate Court also rejected the borrower’s arguments that he was wrongfully evicted and that a supplementary petition or forcible entry proceeding was required, and also rejected the borrower’s argument that the plaintiff mortgagee’s affidavit in support of its motion for final judgment was insufficient, reasoning that the borrower cited no legal authority supporting his argument, thereby violating Illinois Supreme Court Rule 341(h)(7), and, in addition, the borrower once again failed to provide a sufficient record on appeal showing that plaintiff mortgagee violated the Illinois Mortgage Foreclosure Law.

 

Finally, after finding that that the borrower did not even argue on appeal that he exercised diligence in presenting his defenses to the trial court in the original action and in filing the section 2-1401 petition for relief, the Court concluded that the borrower failed to prove by a preponderance of the evidence that he had a meritorious defense and that he exercised due diligence.

 

Accordingly, the Appellate Court affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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Tuesday, June 9, 2015

FYI: Fla App Ct (5th DCA) Holds No Prejudice from Improper Notice of Default/Right to Cure If Defense Not Raised Early in Foreclosure Action

The District Court of Appeal of the State of Florida, Fifth District, recently affirmed summary judgment in favor of a mortgagee in an action challenging a notice of default in a mortgage foreclosure action that provided only 28 days to cure instead of the 30 days required under the mortgage.

 

A copy of the opinion is available at: http://www.5dca.org/Opinions/Opin2015/051825/5D13-3468.op.pdf

 

The mortgagee sent a notice of default to the borrowers that provided 28 days to cure instead of the 30 days specified in the mortgage. The borrower failed to cure the default and the mortgagee sued to foreclose.

 

Almost four years after the foreclosure action was filed and shortly before the hearing on the mortgagee’s motion for summary judgment, the borrowers filed an amended answer raising for the first time the issue of the allegedly defective notice of default. The trial court granted the mortgagee’s motion for summary judgment, and the borrower appealed.

 

The Appellate Court  affirmed, holding that even though the notice of default was deficient, and thus technically breached the mortgage contract, the breach was not material because the borrowers never attempted to cure the default before, during or after the filing of the mortgage foreclosure action.

 

The Appellate Court explained that the purpose of the notice provision at issue is to provide the borrower an opportunity to cure the default before acceleration, and because the borrowers never attempted to cure the default, they could not claim they were harmed by the technical breach.

 

Relying on its earlier decisions in Gorel v. The Bank of New York, Mellon case no. 5D13-3272 (Fla. 5th DCA May 8, 2015) and Allstate Floridian Ins. Co. v. Farmer, 104 So. 3d 1242 (Fla. 5th DCA 2012), the Court held that, absent some prejudice, the breach of a condition precedent is not a defense to the enforcement of an otherwise valid contract.

 

The Court distinguished its previous ruling in Samaroo v. Wells Fargo Bank 137 So. 3d 1127 (Fla. 5th DCA 2014), from the case at bar because in Samaroo the defective notice omitted an entire item from the list required by the mortgage, and the borrower raised the issue promptly after the case was filed, such that the Court in Samaroo concluded that the defect was a material breach.

 

One judge dissented, arguing that where a party raises affirmative defenses, summary judgment is not proper where there are issues of fact raised the affirmative defenses, which have not been refuted. The dissent argued that the mortgagee did not specifically refute the affirmative defense of defective notice, and the issue of materiality was not before the trial court.

 

In addition, the dissent pointed out that the majority’s ruling as a matter of law that the breach was not material would render all notice provisions meaningless because the mortgagee could simply choose not to provide any notice of default and then later argue the failure was not a material breach unless the borrower attempts to cure the default. Accordingly the dissent argued the summary judgment should have been reversed the case remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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Sunday, June 7, 2015

FYI: 3rd Cir Holds Not-Yet-Incurred Fees Without Clarification in Foreclosure Complaint Could Violate FDCPA

The U.S. Court of Appeals for the Third Circuit recently reversed the dismissal of a borrower’s claims under the Federal Fair Debt Collection Practices Act (“FDCPA”) against a foreclosure law firm, holding that not-yet-incurred fees pled in foreclosure complaint -- without conveying that the fees were estimates or imprecise amounts -- could constitute an actionable misrepresentation.

 

The Court also rejected the foreclosure firm’s arguments that a foreclosure complaint could not serve as the basis of an FDCPA claim.

 

However, the Court upheld the dismissal of the borrower’s state law claims, due to lack of ascertainable damages.

 

A copy of the opinion is available at: http://www2.ca3.uscourts.gov/opinarch/141816p.pdf

 

After the borrower defaulted on a mortgage loan, the mortgagee sued to foreclose. The mortgage provided that the lender could recover attorney’s fees, property inspection, and valuation fees for services performed in connection with the borrower’s default.  It also provided for recovery of all expenses incurred in enforcing the mortgage.

 

In 2011, the lender sent the borrower a notice required as a prerequisite to filing foreclosure under Pennsylvania’s Housing Finance Agency Law.

 

More than a year later, in September of 2012, the mortgagee filed its foreclosure action. The complaint contained an itemized list of the total amount owed, which included attorney’s fees, title report fees and property inspection fees as of July 2, 2012, two months before the complaint was filed.

 

While the state court foreclosure action was still pending, the borrower filed a class action complaint against the lender and the foreclosure law firm under the Pennsylvania Loan Interest and Protection Law on the basis that the attorney’s fees stated in the foreclosure complaint were not actually incurred as of July 2, 2012. The defendants removed the case to federal court, and moved to dismiss on the basis that the borrower’s mortgage exceeded the maximum amount covered by the Pennsylvania Loan Interest and Protection Law.

 

The borrower filed an amended complaint alleging that, because the notice under Pennsylvania’s Housing Finance Agency Law and the amount alleged in the foreclosure complaint were defective, the lender violated the Pennsylvania Fair Credit Extension Uniformity Act, and that the foreclosure attorneys violated the FDCPA, and that both violated the Pennsylvania Unfair Trade Practices and Consumer Protection Law. The amended complaint also contained a claim for common law breach of contract against the lender.

 

The defendants moved to dismiss, and the magistrate judge recommended dismissal of the FDCPA claim because allegedly not-yet-incurred, fixed fees were not prohibited by the mortgage or applicable state or federal law.  The defendants also argued that the borrower did not show any actual loss resulting from the alleged misrepresentations, such that the state clams should be dismissed as well. The district court agreed, adopted the magistrate’s recommendations, and entered an order dismissing the amended complaint, with prejudice.

 

The borrower appealed.

 

As you may recall, the FDCPA – at 15 U.S.C. 1692e(2)(A), (5) and (10) -- imposes strict liability on debt collectors who “use any false, (deceptive, or misleading representation or means in connection with the collection of any debt” and at subsection 1692f(1) 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 Third Circuit began its analysis by pointing out that, under established Third Circuit precedent in Rosenau v. Unifund Corp., 5329 F.3d 218, 221 (3d Cir. 2008), the communication on which the FDCPA claim is based is viewed “from the perspective of the least sophisticated debtor.”

 

After the district court dismissed the amended complaint, the Third Circuit held, in the case of in McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F. 3d 240 (3d Cir. 2014), that not-yet-incurred fees listed in a debt collection letter violated the FDCPA when nothing in the letter stated that the not-yet-incurred fees were estimated or in any way suggested that the statement of not-yet-incurred fees was not a precise amount..  

 

The Court concluded that McLaughlin’s holding was broad enough to cover foreclosure complaint, and reversed the district court’s dismissal of most, but not all, of the FDCPA claims against the law firm.

 

The Third Circuit held that, if the amount actually owed was less that the amount represented, and construing the facts in the light most favorable to the non-movant under Federal Rule of Civil Procedure 12(b)(6), the borrower sufficiently alleged that the not-yet-incurred fees were not expressly authorized by the mortgage and thus violated FDCPA subsection 1692f(1).

 

The Court, however, upheld the dismissal of the borrower’s FDCPA claim under section 1692e(5), reasoning that the law firm did not threaten to take an action that cannot legally be taken, such as falsely threatening to sue.

 

The Court then turned to the law firm’s argument that a foreclosure complaint could not serve as the basis of an FDCPA claim, rejecting the argument based on the plain language of the statute and case law interpreting it.

 

The U.S. Supreme Court established in Heintz v. Jenkins, 514 U.S. 291 (1995), that attorneys engaged in debt collection, including through litigation, are not exempt from the FDCPA.

 

In addition, because Congress twice amended the FDCPA after Heintz to exempt “formal pleading[s] made in connection with a legal action” from 15 U.S.C. § 1692e(11), and “communication[s] in the form of [] formal pleading[s]” from § 1692g(d), two provisions not at issue here, the Third Circuit presumed that Congress was aware of its decision in Heintz, and concluded that “a communication cannot be uniquely exempted from the FDCPA because it is a formal pleading or, in particular, a complaint.”

 

The Court rejected the law firm’s attempt to distinguish foreclosure complaints from debt collection letters on the basis that the complaint was a communication directed to the court, not the consumer, reasoning because the FDCPA defines a “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium” and the foreclosure complaint was served on the borrower directly, or indirectly through his attorney, the borrower was the intended recipient.

 

Accordingly, the Third Circuit held that the foreclosure complaint “was unquestionably a communication directed at [the borrower] in attempt to collect on his debt.”

 

Relying on its decision in Simon v. FIA Card Services, N.A., 732 F. 3d 259 (3d Cir. 2013), which refused to dismiss FDCPA claims arising from a pending bankruptcy proceeding because the FDCPA and Bankruptcy Code and Rules were in the eyes of the Third Circuit not in direct conflict, the Court also rejected the foreclosure firm’s argument that foreclosure actions are exempt from the FDCPA because the state rules of civil procedure provide sufficient protection and because the Heintz Court noted the FDCPA has the “apparent objective of preserving creditors’ judicial remedies.”

 

Moreover, the Third Circuit also noted that the plain language of the FDCPA nowhere excludes foreclosure actions from its broad definition of “debt collection” as “activity undertaken for the general purpose of inducing payment,” and references “action[s] to enforce an interest in real property securing the consumer’s obligation” at 15 U.S.C. 1692i.  

 

Thus, the Court refused to exempt foreclosure actions from the FDCPA even if the mortgagee or foreclosure firm only sought in rem relief.

 

Accordingly, the Third Circuit reversed the order dismissing the borrower’s FDCPA claims against the foreclosure firm under sections 1692e(2)(A), (1), and 1692f(1), but affirmed the dismissal of the borrower’s claim under section 1692e(5).

 

The Court then turned to address the borrower’s argument that, by misrepresenting or overcharging for fees in the foreclosure complaint, the lender and law firm violated the Pennsylvania Fair Credit Extension Uniformity Act and the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

 

The Third Circuit concluded that the borrower failed to state a claim under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, because he failed to allege any ascertainable loss of money or property resulting from the defendants’ prohibited conduct, as required by the statute.

 

Because the Pennsylvania Supreme Court has not definitively decided what constitutes ascertainable loss under the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Third Circuit looked to decisions of Pennsylvania’s intermediate appellate courts for guidance.

 

Those courts have held that, while ascertainable loss is a fact-specific inquiry, the loss must not be speculative. The plaintiff must have suffered actual damages of harm as a result of the defendant’s conduct.

 

Because the plaintiff in the case at bar was never deprived of his property and never paid the disputed fees, he did not suffer an “ascertainable loss of money or property, real or personal,” and any temporary injury the borrower may have suffered, which disappeared as the foreclosure action proceeded and attorney’s fees were actually incurred, was too speculative to state a claim under Pennsylvania’s Unfair Trade Practices and Consumer Protection Law against the lender or the law firm.

 

The Third Circuit also rejected the borrower’s claim under Pennsylvania’s Fair Credit Extension Uniformity Act, the state’s analogue to the FDCPA, reasoning that because the state statute does not provide its own private right of action, but instead provides  that a violation is also a violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, it follows that if the borrower cannot state a claim under the Unfair Trade Practices and Consumer Protection Law, he cannot do so under the Fair Credit Extension Uniformity Act.

 

Accordingly, the Court affirmed the district court’s dismissal of the borrower’s claim against the lender under Pennsylvania’s Fair Credit Extension Uniformity Act.

 

Finally, the Court affirmed the district court’s dismissal of the borrower’s common law breach of contract claim against the lender because he did not plead damages resulting from the alleged breach of contract.  The Third Circuit noted that any loss of property he allegedly incurred was speculative and he did not pay the disputed fees or expenses.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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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