The U.S. District Court for the Southern District of Florida recently held that a consumer's failure to comply with a provision in the mortgage requiring notice and a reasonable opportunity to cure required the dismissal of the consumer's claims.
As alternative grounds, the Court held that the reinstatement letter from the defendant mortgagee's attorney complied with the formal requirements of the federal Real Estate Settlement Procedures Act ("RESPA"), and the mortgagee was not a debt collector as defined by the federal Fair Debt Collection Practices Act ("FDCPA").
A copy of the opinion is attached.
The plaintiff obtained a purchase money mortgage loan. The parties later entered into a loan modification agreement . The original lender subsequently assigned the note and mortgage to the current mortgagee.
The plaintiff consumer defaulted, and the mortgagee retained a law firm, which filed a foreclosure action. After the foreclosure case was filed, the loan was assigned back to the original lender, shortly after the loan went into default. The original lender was substituted as the plaintiff in the foreclosure action.
The consumer retained counsel to defend the foreclosure action. The consumer's counsel mailed the originating lender a request for information, to which the lender's attorney responded with a reinstatement letter that sought to collect $250 for estimated attorney's fees for a motion to dismiss that had not yet been filed and $1,094 for service of process fees ($360 per person served).
The plaintiff consumer filed this action, suing the originating lender (which both owned and serviced her mortgage loan), and the law firm that acted as its debt collector, alleging that they violated RESPA, the Florida Consumer Collection Practices Act ("FCCPA"), and the FDCPA.
The originating lender moved to dismiss or in the alternative to strike the amended complaint.
The Court first addressed the originating lender's argument that the consumer failed to state a claim under RESPA, the FCCPA and FDCPA because she failed to allege compliance with a contractual condition precedent in the mortgage.
As you may recall, Paragraph 20 of the mortgage requires the borrower to give the mortgagee notice and a reasonable amount of time to remedy any alleged breach of the mortgage before filing suit.
The Court reasoned that the consumer's claims of improper attorney's fees and excessive service of process fees arose out of the mortgage because the mortgage provides the basis for assessing such fees. Because the consumer failed to allege she gave the required notice and opportunity to cure, the Court held she failed to comply with a condition precedent under the mortgage contract and her claims failed.
The Court refused to abate the lawsuit rather than dismissing it, reasoning that because the consumer's counsel had notice of the fees sought when the originating lender moved for summary judgment in the state court foreclosure action, well before plaintiff's counsel received the reinstatement letter, "[p]laintiff had ample time to provide notice and an opportunity to cure prior to filing suit in compliance with paragraph 20 without running afoul of the statute of limitations."
The Court also rejected the consumer's argument that it would have been futile to send the required notice because it was "unconvinced by Plaintiff's position that a party is relieved from its obligation to satisfy a mandatory contractual condition precedent prior to filing a lawsuit based upon that party's subjective belief that the other party would refuse to cure had it been given notice of the grievance and a reasonable period of time to take corrective action."
The Court went on to provide alternative grounds for its dismissal besides failure to comply with a contractual condition precedent.
First, the Court held that the law firm's reinstatement letter complied with RESPA because it "timely provided Plaintiff, in writing and in a clear and conspicuous manner, with the requested information and contact information for further inquiry." The Court added that the information provided was clear and conspicuous because it had been filed in affidavit form 3 months earlier in the foreclosure action, before the consumer's counsel requested reinstatement figures. In addition, the reinstatement letter stated that any overpayments would be refunded.
Next, the Court found that even if demanding payment of $250 for legal fees not yet incurred and for allegedly inflated process server fees violated the FDCPA and FCCPA, these allegedly inflated charges would not violate RESPA "because the letter is nonetheless fully compliant with the formal and substantive requirements of RESPA and its implementing regulations."
The Court then found that the originating lender could not be held liable under the FDCPA because it was not a "debt collector" as defined in subsection 1692a(6)(F)(ii). The Court noted that only debt collectors, not the original lender or originator, are subject to the FDCPA.
The Court held that the FDCPA's "carve-out for the originator of the loan is disjunctive and applies" even though the loan at issue here was assigned to a third party and then re-assigned back to the original lender.
The Court held that the original lender was also not a debt collector for purposes of the FCCPA "because courts analyzing FCCPA claims are directed by statute that '[i]n applying and construing [§ 559.77(5) of the FCCPA] due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to the federal Fair Debt Collection Practices Act."
The Court declined to address the originating lender's argument that the claims were barred by Florida's litigation privilege because "whether 'the conduct in question is inherently related to, and occur[ed] during an ongoing judicial proceeding' … in the context of this particular case appears to be a factual issue more appropriate for summary judgment or trial." In addition, the Court pointed out in a footnote that the litigation privilege, if applicable, would apply only the FCCPA claim because "Florida's litigation privilege 'does not bar federal claims."
Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com
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