Wednesday, July 8, 2015

FYI: 8th Cir Confirms Collection Action Not "Adverse Action" Under FCRA, No Notice to Debtor Required for Collection Credit Report Pull

The U.S. Court of Appeals for the Eighth Circuit recently affirmed the dismissal of a debtor’s federal Fair Debt Collection Practices Act (“FDCPA”), federal Fair Credit Reporting Act (“FCRA”), and state law claims where a debt collector pulled the debtor’s credit report and served a garnishment summons after the debtor allegedly had sent a cease-and-desist letter to the debt collector.

 

In so ruling, the Court confirmed that:  (1) a debt collector may pull a debtor’s credit report for collection purposes, and that the debt collector did not need to notify the debtor before reviewing such information; and  (2) garnishment is not an “adverse action” under FCRA.

 

A copy of the opinion is available at: http://media.ca8.uscourts.gov/opndir/15/06/143435P.pdf

 

The defendant debt collector served the debtor with a garnishment summons in April 2014.  The debtor returned the standardized Exemption Form included with the garnishment summons claiming without explanation that the garnished money was protected. 

 

Instead, in the Exemption Form, the debtor asserted that the source of the money in his bank account being garnished was “[his] butt” and that he was entitled to death benefits because he “died and payed [his] death with poop money.”

 

An attorney for the debtor sent a letter requesting the debt collector to honor a prior cease-and-desist.  The plaintiff debtor, a former debt collector, alleged he sent a cease-and-desist letter to the debt collector in March 2011, but the debt collector denied it received any letter, the plaintiff debtor never produced the letter in the district court, and there was no letter in the record on appeal.

 

The debtor then sued the law firm under various sections of the FDCPA, FCRA, and state laws.  The lower court dismissed the complaint. 

 

On appeal, the debtor argued (1) the debt collector improperly pulled his credit report twice despite his alleged cease-and-desist letter; (2) the debt collector failed to send the debtor notice of its use or viewing of his credit report; (3) the garnishment summons constituted an “adverse action” requiring notice to the debtor; and (4) the district court incorrectly dismissed his state law claim alleging invasion of privacy.

 

The Eighth Circuit first found there was no evidence the debtor requested the debt collector to cease its communications with him.  The Court also held that, even if there were a cease and desist letter as alleged, a debt collector may communicate with the debtor “to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor” pursuant to 15 U.S.C. § 1692c(c)(2), which the Court held was exactly what the garnishment summons at issue was.

 

Second, the Eighth Circuit also held that the debt collector could request the debtor’s credit report for use “in connection with a credit transaction involving the consumer on whom the information is to be furnishing and involving…review or collection of an account of, the consumer” pursuant to 15 U.S.C. § 1681b(a)(3)(A), and that the debt collector did not need to notify the debtor before reviewing such information.

 

Third, the Eighth Circuit held that service of a garnishment summons is not an “adverse action” requiring notice to the consumer pursuant to the FCRA’s notice requirement under 15 U.S.C. § 1681m(a)(1) or the statutory definition of “adverse action” under 15 U.S.C. § 1681a(k).  The Court did not note whether the debt collector obtained the information regarding the plaintiff debtor’s bank account being garnished through the use of the credit report pulls.

 

Lastly, the Eighth Circuit held that, although Minnesota recognizes an invasion of privacy cause of action for “intrusion upon seclusion” as stated in Lake v. Wal-Mart Stores, Inc., 582 N.W.2d 231, 235 (Minn. 1998), a plaintiff must allege a legitimate expectation of privacy in the secluded matter and the intrusion must be “highly offensive to the ordinary reasonable [person]” pursuant to Swarthout v. Mut. Serv. Life Ins. Co., 632 N.W.2d 741, 744-745 (Minn. Ct. App. 2001). 

 

The Court held that collection of bank account information is not “highly offensive” and is in fact authorized by Minnesota Statute § 550.011.  The law firm could therefore request the debtor’s banking information.

 

Accordingly, the Eighth Circuit affirmed the dismissal of the debtor’s FDCPA, FCRA, and state laws claims. 

 

 

 

 

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

 

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FYI: NV Fed Ct Holds FHFA Must Consent to HOA "Super Priority Lien" Foreclosures

The U.S. District Court for the District of Nevada recently held that the federal Housing Economic Recovery Act of 2008 (“HERA”) requires super-priority lien holders to obtain consent from the Federal Housing Finance Agency (“FHFA”) prior to foreclosing on any liens on properties where the FHFA is acting as conservator. 

 

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

 

In 2007, two borrowers obtained a $105,700 loan on a property located in Las Vegas that was secured by a Deed of Trust on the property.  The property was also part of a homeowners association (“HOA”) and subject to monthly association dues.  Years later, the Deed of Trust was transferred to a regulated entity held in FHFA conservatorship.  The Corporate Assignment of the Deed of Trust was recorded in March 2014.  Six months later, after foreclosing on its super-priority lien for unpaid HOA fees, the HOA sold the property for $28,500 to a third party purchaser and recorded a Trustee’s Deed Upon Sale in September 2014. 

 

FHFA never consented to the HOA’s foreclosure.

 

Subsequently, the third-party purchaser filed a state court claim to quiet title and extinguish all other liens on the property—including the mortgage lien held by the FHFA as conservator.  FHFA and other defendants to that action removed the case to federal court in the District of Nevada and asserted counter-claims against the purchaser and HOA. 

 

The FHFA then moved for summary judgment.  It did not dispute that under ordinary circumstances, Nevada’s super-priority lien statute would extinguish its prior first security lien interest.  Instead, the FHFA argued that HERA barred the HOA from foreclosing on the property without its consent and sought summary judgment against the HOA and third party purchaser as to the quiet title action.  The Court agreed.

 

As you may recall, HERA provides protections for properties held by regulated entities while under conservatorship of FHFA.  The Court examined the interplay between provisions in Nevada’s super-priority lien statute (Nev. Rev. Statutes § 116.3116) and 12 U.S.C. § 4617 of HERA.

 

The Court held that the plain language of § 4617 of HERA requires consent from the FHFA as conservator of any of HERA’s “regulated entities” prior to foreclosure. 

 

In particular, the Court considered language in § 4617(j)(1) that reads “[t]he provisions of this subsection shall apply with respect to the Agency [defined as the FHFA] in any case in which the Agency is acting as a conservator or a receiver.”  Moreover, § 4617(j)(3) provides that “[n]o property of the Agency shall be subject to levy, attachment…without consent of the Agency….”

 

The Court held that, to an extent a conflict exists between the state statute and HERA, the HERA provision requiring consent prior to foreclosure (12 U.S.C. § 4617) prevails under the Supremacy Clause of the United States Constitution.

 

Accordingly, the Court held that a “straightforward reading of the statutory language bars the HOA’s foreclosure in this case from extinguishing the Deed of Trust without FHFA’s consent, regardless of the HOA lien’s super-priority under state law.” 

 

Moreover the Court held that its reading of the HERA § 4617(j) is further supported when compared with 12 U.S.C. 1825(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”).  FIRREA provides property protections for the FDIC when it is acting as a receiver that are similar to those found in HERA.  The Court held that FIRREA § 1825(b)(2) “contains virtually identical language” to HERA § 4617(j)(3) and therefore decisions interpreting FIRREA § 1825(b)(2) are highly “persuasive for this Court’s interpretation of [HERA] section 4617(j)(3).”

 

The Court held that of the several courts that have considered the corresponding property protections under FIRREA, “all have found that the plain language of that statute prevented property held by the FDIC as receiver from being extinguished by the foreclosure of superior liens without FDIC’s consent.”

 

Accordingly, the Court rejected the HOA’s and third-party purchaser’s multiple arguments that HERA § 4617(j)(3) did not apply to them.  Notably, this includes their arguments that:  § 4617(j)(3) violates procedural due process; that it does not apply because it “lacks specific preemption language;” and that because one court (the Fifth Circuit) has held the operative similar language in FIRREA only protects the FDIC from “taxation and liens by state and local authorities,” and not from private entities like the HOA, HERA likewise does not apply to private entities such as the HOA.

 

As to this final argument, the Court held that (1) the Fifth Circuit opinion cited by the HOA and third party purchaser was not binding precedent, (2) the opinion involved interpretation of FIRREA and not HERA, and (3) certain differences in the titling structure for HERA show that it is plainly intended to apply to both state and private entities (even if FIRREA is not). 

 

Consequently, the Court held that the HOA’s foreclosure sale did not extinguish the private lien held in conservatorship by FHFA, and granted summary judgment in its favor and against the HOA/third-party purchaser as to the quiet title claims.

 

 

 

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, July 7, 2015

FYI: Fla Cir Ct Holds Breach of Title Policy Exposes Title Insurer to Extra-Contractual Damages Above Policy Limits

The Florida Circuit Court, Judicial Circuit in and for Orange County, recently granted summary judgment to an insured against a title insurer after the title insurer failed to except a title defect from coverage under a policy. 

 

In so ruling, the Court held that breaching a policy of title insurance exposes the title company to extra-contractual liability beyond the policy’s limits.

 

A copy of the opinion is attached.

 

In that case, the insured had purchased 253 acres of property in Florida.  The title insurer issued a policy that failed to note a recorded mobile home plat that appeared to cover approximately one-third of the property at issue.  After receiving notice of the claim, the title insurer accepted coverage—without sending a reservation of rights letter—and hired an attorney to resolve the defect. 

 

At this point, the title insurer had three options.  It could (1) attempt to cure the defect through a non-judicial process (such as petitioning the county), (2) file a suit to cure the defect, or (3) pay the insured the policy limits—over $3.5 million.

 

Rather than institute litigation (or pay the substantial policy limits), the title insurer had the attorney petition the county in which the property was located to vacate the plat.  It took approximately two-and-a-half years for the attorney to get the county to do so.  And the county agreed to vacate the plat only after the insured agreed to grant an easement to the county across his property.

 

Then, the insured sued the title company for breach of contract and for a declaratory judgment, claiming he suffered damages comprising (1) loss of value of the land of $2,000,000 and (2) other damages, like carrying costs.  The Court made three main rulings.

 

First, the Court quickly concluded the insured was entitled to payment for the value of the easement he gave to the county, in an amount to be determined at trial.

 

Second, the Court rejected the title insurer’s attempt to argue that Florida’s Marketable Record Title Act (MRTA) had extinguished the mobile-home plat, and therefore there was not a title defect.  Although the operation of MRTA was not germane to the opinion, the Court noted that that law deals with eliminating older claims to property if the claimant has not taken certain action to protect his or her interest.

 

Regardless of the merits of the MRTA argument, the Court found that the title insurer was estopped from raising it.  The title insurer had accepted coverage, without a reservation of rights, and had chosen to use a non-judicial process to attempt to cure the plat defect.  The Court found that the insured had relied on the title insurer’s choice of method for resolving the defect, and the title insurer could not now claim a defense to coverage that it failed to raise initially.

 

Lastly, the Court made a significant ruling on what damages the insurer could seek at trial.  The Court began by noting that the policy stated it would pay for “actual loss” or “damage,” without defining those terms.  Then, the Court looked to the oft-cited law that provisions in insurance policies are construed against the insurer if they are at all ambiguous.

 

With this in mind, the Court noted that Florida law values a pre-suit title claim at (1) the diminution in market value of the property caused by the defect; or (2) the cost of removing the defect.

 

But the Court did not stop there.  Because this was not just a pre-suit title claim -- this was a suit for a breach of the title policy, the Court analyzed what damages an individual can recover for a breach of a policy, as opposed to how much a title insurer would need to pay to satisfy a claim pre-suit. 

 

Turning to the alleged breach, the Court noted that the title insurer had a duty to resolve the defect in a diligent manner.  The jury needed to decide whether that duty had been breached.  Next, the Court laid out the rubric for the damages that would be recoverable if the jury found the title insurer had breached the Policy.

 

In doing so, the Court followed a Texas federal-court case that applied Florida law and found that, when a title insurer breaches its duty to resolve a defect diligently, it is responsible for “all measurable compensatory damages resulting from that breach.”

 

Accordingly, with a pre-suit title claim, the maximum amount of exposure for a title insurer is, of course, the agreed-upon policy limit.  However, with a breach-of-policy suit, a title insurer can be liable for amounts in excess of the policy limits.

 

Along those lines, damages can be quite limited under a pre-suit title claim.  The title insurer would only have to pay the diminution in value of the property or the amount necessary to cure it.  In stark contrast, a policy-holder who successfully proves a breach of the policy is entitled to all compensatory damages flowing from the breach. 

 

 

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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Monday, July 6, 2015

FYI: Ill App Ct Affirms Foreclosure Despite Discrepancy In Copy of Note That Suggested Standing Problem

The Appellate Court of Illinois, Third District, recently affirmed a grant of summary judgment of foreclosure in favor of a mortgagee in spite of an inconsistency between the copy of the note attached to the complaint and the note introduced into evidence. 

 

A copy of the opinion is available at: http://illinoiscourts.gov/Opinions/AppellateCourt/2015/3rdDistrict/3140553.pdf

 

The foreclosing plaintiff mortgagee originally attached to its complaint a note that had a stamp stating it was a “true and correct copy of the original.” 

 

This copy of the note did not have any indorsement.  However, at summary judgment, the plaintiff introduced the original note.  Unlike the “true and correct” copy attached to the complaint, the original note did have an indorsement in blank.

 

The plaintiff also was not described as the mortgagee on the mortgage itself.  However, the plaintiff did allege in its complaint that it was the mortgagee, as required by Illinois law.

 

Despite these discrepancies, the trial court entered summary judgment for the plaintiff mortgagee.

 

On appeal, the borrowers raised three arguments.  The Appellate Court rejected all of them. 

 

First, the borrowers claimed that the plaintiff mortgagee had not alleged it was the current mortgagee as required by Illinois law.  The Appellate Court summarily dismissed this argument because the plaintiff mortgagee had alleged “Capacity in which Plaintiff brings this foreclosure: Plaintiff is the Mortgagee under 735 ILCS 5/15-1208.” 

 

The Court did not reject this allegation as impermissibly conclusory.  Instead, the Court held that “Plaintiff's complaint complies with the statutory requirements.”

 

Next, the borrowers argued that there was a genuine issue of material fact about whether the plaintiff mortgagee was the holder of the note because the “true and correct” copy of the note attached to the complaint was not indorsed in blank.  The borrowers claimed this created an issue of fact about whether the plaintiff mortgagee actually was entitled to enforce the note. 

 

The Court again agreed with the plaintiff mortgagee.  It found that the plaintiff mortgagee’s holding the note indorsed in blank was prima facie evidence of its right to enforce the note.  Likewise, the Appellate Court held that attaching the note to the complaint was prima facie evidence of ownership.  The Court rejected the differences between the original note and the copy by saying “[w]hile the nonidentical copies do raise some questions—such as, at what point in time the note attached to the complaint was copied—these questions are immaterial to the issue o[f] ownership or standing.” 

 

The Appellate Court noted that an Illinois rule promulgated in 2013 would have required that the note “including all indorsements and allonges” be attached to the complaint.  However, that rule became effective after the plaintiff mortgagee had filed the complaint.  Under present Illinois law, attaching a note without all indorsements and allonges would not be acceptable under the rule currently in place now.

 

Lastly, the borrower raised an issue regarding a discovery dispute that was unrelated to the merits of the case.  The borrower had served a number of requests to admit facts and genuineness of documents.  The plaintiff mortgagee asserted blanket objections in response.  The borrower argued that the requests should have been deemed admitted because the objections were improper. 

 

Without going into any detail, the Appellate Court acknowledged that some of the objections were improper.  In fact, the Court found that the borrowers’ allegations of bad faith had “substantial merit.” 

 

However, the Appellate Court held that the trial court had not abused its discretion, because the borrowers never asked the trial court to rule on the objections.  “Where a party responds to requests for admissions in the form of objections to those requests, it is the duty of the requesting party to raise the issue of the objection in a motion before the trial court.” La Salle National Bank of Chicago v. Akande, 235 Ill. App. 3d 53, 67 (1992).  Under Illinois Supreme Court Rule 216, which governs requests for admission,  "[a]ny objection to a request or to an answer shall be heard by the court upon prompt notice and motion of the party making the request." Ill. S. Ct. R. 216(c) (eff. May 1, 2013).

 

Here, the borrower moved in the lower court to have the requests be deemed admitted because the objections were improper.  The Appellate Court stated that it was not aware of any law that required this, noting that “[i]ndeed, such a position would run counter to our supreme court's stated policy goal of adjudicating cases on their merits rather than on technicalities.”

Accordingly, the Appellate Court affirmed the lower court’s rulings in favor of the plaintiff mortgagee.

 

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

 

 

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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