The U.S. Court of Appeals for the Eleventh Circuit recently held that the reporting of a mortgage account as past due and delinquent during a forbearance plan was neither inaccurate nor materially misleading under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (FCRA).
A copy of the opinion is available at: Link to Opinion
The plaintiff borrower lost her job and enrolled in an unemployment forbearance plan with her mortgage loan servicer. The forbearance plan called for "monthly forbearance plan payments" of $25.00 for a period of six months.
The forbearance plan stated that during the forbearance period, the servicer would "report to the credit bureaus that you are paying under a partial payment agreement for your [home mortgage]." Additionally, the servicer told the borrower that her payments would still be considered late because the forbearance payments was not the contractual payment.
The borrower sold her home and paid off the loan by June 1, 2013. Subsequently, the borrower attempted to purchase a new home and obtained a credit report. She discovered that the servicer reported the loan to the credit reporting agencies (CRAs) as "past due" and "delinquent." Specifically, the servicer reported the account past due during the forbearance period, and it listed a past due amount of $22,308 as of June 2013.
Over the next year and a half the borrower filed several disputes with the CRAs regarding the loan. In response to the disputes, the servicer updated the loan's status as "paid in full" and changed the "amount past due" to $0.00. However, the servicer did not remove or suppress the past due payments during the forbearance period in the payment history.
The borrower was denied financing. She filed a complaint alleging that the servicer violated 15 U.S.C. § 1681s-2(b) by failing to conduct a reasonable investigation in response to her disputes.
The trial court granted the servicer's motion for summary judgment and denied the borrower's cross motion. In so ruling, the trial court held that the servicer's reporting was not inaccurate or materially misleading.
This appeal followed.
As you may recall, section 1681s-2(b) of the FCRA require furnishers of information, including mortgage servicers, to conduct an investigation after receiving notice from a CRA of a dispute from a consumer regarding information reported by the furnisher. 15 U.S.C. § 1681s-2(b).
Upon receipt of a notice from a CRA that a consumer disputes the completeness or accuracy of any information provided by a furnisher, the furnisher must (1) conduct an investigation with respect to the disputed information; (2) review all relevant information provided by the CRA; and (3) report the results of the investigation to the CRA.
If the furnisher's investigation determines that an item of information disputed by a consumer is incomplete, inaccurate, or cannot be verified, the furnisher must either modify, delete, or permanently block reporting of that information. Further, with respect to information the furnisher finds to be inaccurate or incomplete, the furnisher must report those results to all other CRAs.
The borrower argued that the servicer's reporting was inaccurate because: (1) the "Scheduled Monthly Payment Amount" was $2,197.38 per month every month, including the forbearance period when her monthly payments were only $25.00; and (2) the payments on the account were "past due" and "delinquent" despite her monthly payments under the forbearance plan.
However, the Eleventh Circuit found that FCRA required the servicer to furnish information regarding the loan's status and payment history under the terms of the promissory note. Unless the forbearance plan modified the note, the borrower's compliance with the terms of a second, separate agreement she entered with the servicer had no bearing on the accuracy of the information the servicer reported to the CRAs.
Thus, the Eleventh Circuit determined that the servicer's reporting of the scheduled payment and payment history was not inaccurate or materially misleading.
Next, the borrower argued that the Consumer Data Industry Association's guidelines regarding credit reporting ("CDIA Guidelines") required the servicer to (1) report the "Scheduled Monthly Payment Amount" to be the "new" payment amount for loans in forbearance; and (2) include the "Special Comment Code" of "CP" to indicate that the loan was in forbearance, which the servicer did not do. The borrower also argued that the Fannie Mae Servicing Guide instructed the servicer to follow the CDIA Guidelines.
The Eleventh Circuit observed that the CDIA Guidelines did not preclude the servicer from reporting the account as "past due" and "delinquent" for the months that the borrower did not make full payments under the note. The borrower's argument that the servicer must report the loan as current during the forbearance period, in the Eleventh Circuit's view, misconstrued the servicer's reporting obligations under FCRA. During the forbearance period, the loan was past due and delinquent under the original terms of the loan.
Thus, even if the servicer had reported the $25.00 forbearance payment, the Eleventh Circuit noted that it would not have been inaccurate for the servicer to report that the loan as past due because the borrower was not contractually current.
The Eleventh Circuit also noted that reporting the Scheduled Monthly Payment Amount as $25.00 while simultaneously reporting the account as "past due" and "delinquent" could be misleading, as prospective lenders may have interpreted the report to mean that the borrower did not pay the lower $25.00 per month payment.
Further, if the servicer reported that the borrower had made payments under the note as agreed when she was in fact paying only $25.00 per month, the report would have conveyed that the borrower fully met her payment obligations under the note, which was not true.
In sum, the forbearance agreement between the borrower and the servicer did not legally modify the terms of the note, and the borrower was past due and delinquent during the forbearance plan. Therefore, the Eleventh Circuit concluded that the servicer's reporting was accurate.
Accordingly, the Eleventh Circuit affirmed the judgment of the trial court granting the servicer's motion for summary judgment.
Ralph T. Wutscher
Maurice Wutscher LLP
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