FYI: Md App Ct Holds Order Forfeiting Deposit from Defaulting Foreclosure Purchaser Not a Final Order for Purposes of Appeal

The Court of Special Appeals of Maryland recently dismissed an appeal for lack of jurisdiction, determining that an order forfeiting the deposit for a defaulting foreclosure purchaser is not final, and that if fails to meet the requirements for an interlocutory appeal.

 

A copy of the opinion is available at:  http://www.mdcourts.gov/opinions/cosa/2014/1140s13.pdf

 

Appellant (the “Defaulting Purchaser”) was the successful bidder at a foreclosure auction, agreeing to pay $100,000 for the subject property.  The Defaulting Purchaser furnished a deposit of $27,000, and signed a “Memorandum of Purchase at Public Auction,” in which it agreed “to complete the purchase in accordance with said conditions in the advertisement.”

The advertisement for the foreclosure sale included the following Terms of Sale, in pertinent part:

 

If the purchaser fails to settle within 10 days of ratification, the Sub[stitute] Trustees may file a motion to resell the property. If Purchaser defaults under these terms, deposit shall be forfeited. The Sub[stitute] Trustees may then resell the property at the risk and cost of the defaulting purchaser.

 

The Defaulting Purchaser failed to settle within 10 days of the sale’s ratification. The substitute trustees moved to forfeit the deposit, which the circuit court granted pursuant to an order which provided that “…the deposit of $27,000.00 paid by the defaulting purchaser…shall be forfeited and the subject property may be resold at the risk and expense of the defaulting purchaser” (the “Forfeiture Order”).  The Defaulting Purchaser appealed.

 

The property was resold at public auction for $193,800.  The Defaulting Purchaser did not appeal the order ratifying the second sale, nor had the auditor’s report from the second sale been filed at the time the Defaulting Purchaser appealed the Forfeiture Order.

 

Determining that the Forfeiture Order was neither a final order, nor appealable as an interlocutory order, the appellate court dismissed the appeal.

 

As you may recall, Maryland law provides that, generally, a party may only appeal from a final judgment of the circuit court.  See Md. Code, Cts. & Jud. Proc., § 12-301.  To be considered a final judgment, an order must “determine and conclude the rights involved or…deny the appellant the means of further prosecuting or defending his or her rights and interests in the subject matter of the proceeding. Moreover, the ruling must leave nothing more to be done in order to effectuate the court’s disposition of the matter.” Op. at *6 (emphasis in original).

 

Here, the appellate court determined that the Forfeiture Order lacked finality because it did not determine and conclude the rights of the parties.  In light of the unsettled status of the deposit, the Defaulting Purchaser’s continuing ability to assert its rights regarding the deposit, and the additional responsibilities created related to a second foreclosure sale, the Court determined that the Forfeiture Order was not final. 

 

Notably, the Court questioned whether the deposit would be truly forfeited in the legal sense of the term, applied toward any actual damages, or refunded, in whole or in part, to the Defaulting Purchaser. The unsettled status of the deposit was particularly apparent in light of the substitute trustees’ position that it may be applied toward any “actual damages that appellees suffer as a result of [the Defaulting Purchaser’s] default on the first sale,” as well as the fact that the second foreclosure resulted in a higher sale price for the property. 

 

Additionally, the Court observed that the Defaulting Purchaser “retains the ability to file exceptions to an auditor’s report on the resale of the Property if it disagrees with the auditor’s application of the deposit.”  According to the Appellate Court, a ruling on those exceptions would constitute a final determination on the fate of the deposit.  Consequently, the Court held, the Defaulting Purchaser maintains the “continuing ability to assert its rights and interests in the subject matter of the proceeding.”

 

The Court stated that, because the Forfeiture Order authorized the property to be resold, which in turn would obligate the circuit court to decide whether to ratify the second sale, such order did not “leave nothing more to be done in order to effectuate the court’s disposition of the matter.”

 

The Court also determined that the Forfeiture Order was not appealable under the exceptions to finality under Md. Code, Cts. & Jud. Proc., § 12-303.  According to the Court, the exception under Section 12-303(3)(iv) for an interlocutory order is inapplicable.  Specifically, the Court noted that statute defines an interlocutory order as one that “determin[es] a question of right between the parties and direct[s] an account to be stated on the principle of such determination.”  To that end, according to the Appellate Court, the Forfeiture Order neither determined the rights of the parties, nor directed an account to be stated.  Thus, the Court held that the Forfeiture Order did not qualify as an appealable interlocutory order.

 

Accordingly, the Court of Special Appeals of Maryland dismissed the Defaulting Purchaser’s appeal for lack of jurisdiction.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

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FYI: 9th Cir Rules Debt Collector May Violate FDCPA Even If Collection Letter Was Sent to Wrong Address and Was Never Received by Consumer

The U.S. Court of Appeals for the Ninth Circuit recently held that a plaintiff had Article III standing to assert claims for violation of the federal Fair Debt Collection Practices Act (“FDCPA”) based on communications he did not receive, because the alleged violation of his statutory right not to be the target of misleading debt collection communications constituted a cognizable injury. 

 

The Court also held the plaintiff had statutory standing under the FDCPA despite not having received the alleged communications.  The Court further held that the misidentification of a debt’s original creditor in a dunning letter and a subsequently filed court complaint constitutes a material misrepresentation in violation of the FDCPA. 

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2014/06/25/12-56783.pdf

 

Plaintiff consumer (“Debtor”) purchased a computer from the Manufacturer.  At the time of the purchase, Debtor resided in New Mexico, but had the computer shipped to his parents’ home in California.  Debtor financed the computer’s purchase through the Manufacturer’s financial services plan and Manufacturer then sold and assigned the finance agreement (the “Debt”).  Debtor claims he paid the Loan in full within 2 years of purchasing the computer, but Manufacturer’s records indicated otherwise. 

 

The Debt was charged off and sold to defendant Creditor (“Creditor”).  Creditor transferred the Loan to its affiliated collection agency (“Collection Agency”), which mailed three dunning letters to Debtor.  Collection Agency then referred Debtor’s file to Defendant law firm (“Law Firm”), which also sent a dunning letter to Debtor.  Every dunning letter was mailed to Debtor’s parents’ California residence rather than Debtor’s New Mexico residence. 

 

After receiving no response to the letters, Law Firm initiated an action in state court (the “state complaint”).  It was during this litigation that Debtor first learned the dunning letters had been mailed to his parents’ California residence.  Law Firm subsequently dismissed the state complaint.

 

Debtor filed the instant action against Creditor, Law Firm, and Collection Agency alleging FDCPA violations as well as several state law violations.  Specifically, Debtor asserted the following FDCPA claims: (1) the letters at issue misidentified the Loan’s original creditor in violation of 15 U.S.C. § 1692e; and (2) the attorney who signed Law Firm’s dunning letter was not “meaningfully involved” in evaluating Debtor’s case in violation of 15 U.S.C. § 1692e(3).  Debtor sought statutory damages only, and conceded he suffered no pecuniary loss.

 

After surviving a motion to dismiss, the court certified a class of consumer plaintiffs.  Law Firm, Creditor, and Collection Agency then filed a motion for summary judgment, which was granted.  Debtor’s appeal followed.  It should be noted that Collection Agency and Creditor did not appear for the purposes of Debtor’s appeal.

 

As you may recall, 15 U.S.C. § 1692k provides that “any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person.”

 

Additionally, 15 U.S.C. § 1692e states that “a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”      

 

On appeal, Law Firm argued that Debtor lacked statutory and Article III standing because Debtor never actually received any of the dunning letters. 

 

As to statutory standing, Law Firm argued the FDCPA does not provide a cause of action for a consumer in Debtor’s position, despite the broad language of 15 U.S.C. § 1692k(a).  As to Article III standing, Law Firm argued that even if Debtor has standing under the FDCPA, Article III forbids it as consumers who never receive the offending collection communications have not suffered an “injury in fact.” 

 

As you may recall, in order for a plaintiff to have standing he or she must have suffered an “injury in fact,” meaning “an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical.  Lujan v. Defenders of Wildlife, 504 U.S. 560 (1975). 

 

An Article III injury in fact “may exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates standing.’”  Id. at 578 quoting Warth v. Seldin, 422 U.S. 490, 500 (1975).  However, there are two constitutional limitations on Congress’s ability to confer Article III standing.  “First, a plaintiff ‘must be among the injured, in the sense that she alleges the defendants violated her statutory rights.’”  Robins v. Spokeo, Inc., 742 F.3d 409, 413 (9th Cir. 2014) quoting Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 707 (6th Cir. 2009).  “Second, the statutory right at issue must protect against ‘individual, rather than collective, harm.’”  Id. (quoting Beaudry, 579 F.3d at 707).

 

The gravamen of Law Firm’s Article III standing argument was that Debtor was not truly “among the injured.”  Specifically, Law Firm contended that Debtor did not suffer an “actual injury” because he never received the dunning letters that contained the alleged misleading representations.  Law Firm further argued that a consumer who does not receive a dunning letter cannot suffer pecuniary or emotional harm, “nor can such a consumer be hindered in deciding how to respond to the effort to collect the debt.”

 

The Ninth Circuit disagreed.  Relying on Havens Realty Corp. v. Coleman, 455 U.S. 363, (1982) (“Havens”), the Court explained it is not necessary to suffer pecuniary or emotional harms in finding “injury in fact.”  In Havens, the Court held that an African-American, who posed as an apartment hunter, possessed standing to bring suit for violations of the Fair Housing Act (“FHA”) based on the defendants’ false representations that no apartments in a particular housing complex were available, even though the plaintiff had no intention of actually renting an apartment from the defendants.  Id. at 374.  The Havens Court concluded that the plaintiff had Article III standing because the alleged injury to his statutorily created right to truthful housing information was a cognizable injury regardless of whether the plaintiff had any intention to reside in the defendants’ housing complex.  Id.  The Havens’ plaintiff possessed standing not because she had been “deprived . . . of the benefits that result from living in an integrated community,” but because her “statutorily created right to truthful housing information” had been infringed.  Id. at 374-75.

 

Applying the Havens’ holding to Debtor’s appeal, the Court explained the injury Debtor suffered “was a violation of his right not to be the target of misleading debt collection communications.”  This supposed violation of an alleged statutory right constituted a cognizable injury under Article III.  According  to the Ninth Circuit, when the injury in fact is a violation of a statutory right inferred from the existence of a private cause of action, the remaining elements of standing are usually met, and thus the Court held that Debtor had constitutional standing.  See Robins v. Spokeo, Inc., 742 F.3d 409, 414 (9th Cir. 2014).

 

The Court next addressed whether Debtor had statutory standing under the FDCPA.  The issue the Court examined was whether 15 U.S.C. § 1692e’s “use of any false, deceptive, or misleading representation. . . with respect to any person” language created a requirement that the person to whom the representation was addressed to actually had to receive it.

 

Law Firm contended that the term “representation” required the presence of two parties, the party making the representation and the party to whom the representation is made. 

 

In response, the Court stated the FDCPA’s text is aimed at a debt collector’s conduct, rather than its effect on the consumer.  Specifically, the Court stated that a debt collector violates the FDCPA just by sending a consumer a misleading letter and it is irrelevant whether some interceding condition -- including non-receipt of the letter, the consumer’s failure to read it, or the fact that the consumer is savvy enough not to be misled by it -- renders the misleading letter ineffective.

 

The Ninth Circuit next examined the FDCPA’s statutory construction to determine whether a debt collector’s conduct must have some effect on a consumer before a consumer has standing to bring an FDCPA action. 

 

The Court began by explaining a consumer possesses a cause of action under the FDCPA even when a defendant’s conduct does not cause a consumer to suffer any pecuniary or emotional harm.  Further, the Court stated the FDCPA does not even require that a plaintiff actually be misled or deceived by the debt collector’s representations, but rather “liability depends on whether the hypothetical ‘least sophisticated debtor’ likely would be misled.”  See Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1061 & n.2 (9th Cir. 2011).  The Court also noted the FDCPA awards successful consumers with both statutory damages and attorney fees meaning Congress “clearly intended that private enforcement actions would be the primacy enforcement tool of the Act.”  Baker v. G.C. Servs. Corp., 677 F.2d 775, 780–81 (9th Cir. 1982).

 

The Court thus held the FDCPA’s broad regulatory purpose is “effectuated by measuring the lawfulness of a debt collector’s conduct not by its impact on the particular consumer who happens to bring a lawsuit, but rather on its likely effect on the most vulnerable consumers -- the hypothetical ‘least sophisticated debtor’ -- in the marketplace.”  Therefore, Debtor had statutory standing under the FDCPA despite never receiving any of the dunning letters at the time they were sent. 

 

After determining Debtor had standing under Article III and the FDCPA, the Court turned its attention to Debtor’s actual FDCPA claims.

 

When assessing FDCPA liability the court is not “concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer’s ability to intelligently choose his or her response.”  Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1034 (9th Cir. 2010).

 

As to the three dunning letters sent by Collection Agency, Debtor alleged that they falsely identified the Loan’s original creditor and listed the incorrect account number.  Thus, the issue for the Court was whether the misidentification of the original creditor, and to a lesser extent, listing the incorrect account number, constituted a violation of 15 U.S.C. § 1692e.

 

Law Firm argued that the erroneous identification of Debtor’s original creditor did not violate the FDCPA because it was not material.  In support of its argument, Law Firm argued that the first two dunning letters referenced the computer Debtor bought and this was sufficient to inform even the least sophisticated debtor about the subject matter of the collection effort.  Law Firm further argued that if a consumer is genuinely puzzled by the mention of the incorrect original creditor, he or she could place a call to acquire additional information or to dispute the debt. 

 

The Ninth Circuit again disagreed, holding that, in the context of debt collection, the identity of a consumer’s original creditor “is a critical piece of information, and therefore its false identification in a dunning letter would be likely to mislead some consumers in a material way.”  According to the Ninth Circuit, the factual errors contained in a Creditor’s dunning letter could easily cause the least sophisticated debtor to suffer a disadvantage in determining how to respond to a debt collector’s collection effort. 

 

The Court provided an example whereby a consumer reasonably contacted the misidentified original creditor listed in the letter to attempt to obtain any records pertaining to the consumer’s debt.  However, the incorrectly listed original creditor would not have any responsive records or information and could not aid in identifying the correct original creditor.  According to the Ninth Circuit, even if the consumer eventually determined who the correct creditor was, the delay would have “cost him some portion of the thirty days that the FDCPA grants to consumers before having to respond to a collection notice, lest the debt collector be entitled to assume the validity of the debt.”

 

Thus, the Ninth Circuit held that the misidentification of Debtor’s original creditor would likely mislead consumers in a way that deprives them of their right to “understand, make informal decisions about, and participate fully and meaningfully in the debt collection process.”  Clark v. Capital Credit & Collection Servs. Inc., 460 F.3d 1162, 1171 (9th Cir. 2006).  As a result, the Court held that Collection Agency’s dunning letters contained misleading material statements that triggered liability under the FDCPA.

 

Law Firm attempted to argue that a confused consumer could place a phone call to the debt collector to clear up any confusion.  The Court disregarded this argument stating “consumers are under no obligation to seek explanation of confusing or misleading language in debt collection letters.”  Gonzales, 660 F.3d at 1062.  Moreover, allowing such an interpretation would eliminate the FDCPA’s prohibition of misleading representations, and a court “must avoid a construction which renders any language of the enactment superfluous.” Security Pac. Nat’l Bank v. Resolution Trust Corp., 63 F.3d 900, 904 (9th Cir. 1995).

 

The Court then turned its attention to the state court complaint filed by Law Firm.  The state court complaint contained the same misrepresentations as Collection Agency’s dunning letters in that it referenced the incorrect original creditor.  Based upon its determination that the Collection Agency’s dunning letters violated the FDCPA, the Court held the state court complaint constituted an FDCPA violation as well.  This was despite the fact the state court complaint twice referenced the correct original creditor.

 

The Court next examined whether Law Firm’s dunning letter violated the FDCPA.  This letter did reference the incorrect original creditor, but did not label it as the original creditor.  Instead, the letter listed the incorrect account number and original creditor in the “Re:” line item atop the body of the letter. 

 

Law Firm argued its dunning letter was less misleading than the dunning letters sent by Collection Agency due to the absence of a label providing the original creditor’s information and the fact it identified Creditor.  The Ninth Circuit disagreed with the Law Firm’s argument stating its letter was even more misleading than Collection Agency’s dunning letters because it lists Creditor as a “client” as opposed to the owner of the debt and again referenced the incorrect original creditor in the “Re:” subject line.  The Court explained that these mistakes give “the least sophisticated debtor even less of a clue as to how to investigate the claim being made against him, making it more likely that the consumer will waste valuable time and suffer confusion in his efforts to formulate a response.”  Therefore, according to the Ninth Circuit, Law Firm’s letter violated the FDCPA.

 

Debtor independently argued that Law Firm’s dunning letter violated the FDCPA because the lawyer who signed it was not “meaningfully involved,” and thus violated 15 U.S.C. § 1692e(3).  The Court declined to address this argument as it had already determined that Law Firm’s dunning letter contained material misrepresentations in violation of the FDCPA.  Thus, the Court determined there was no need to address Debtor’s “meaningful involvement” claim as a “violation of a single FDCPA provision is sufficient to establish liability,” Gonzales, 660 F.3d at 1064 n.6. 

 

Accordingly, the Court reversed the district court’s granting of summary judgment and instructed that judgment be entered in favor of Debtor. 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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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FYI: Ill App Ct Rules TILA Rescission Applies Only to "Obligors"

The Illinois Appellate Court, First District, recently held that only an "obligor" has a right to rescind a loan transaction under the federal Truth in Lending Act (“TILA”). 

 

A copy of the opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2014/1stDistrict/1120982.pdf

 

A mortgagee filed its complaint for foreclosure following the death of the borrower (“Borrower”).  The note was signed by both the Borrower and a land trust that held title to the real estate collateral (“Record Owner”), but the loan documents provided that the Record Owner would not be personally liable for the amounts due.  The Record Owner was only the mortgagor and sole signatory on the mortgage, but the mortgage included an exculpatory clause that expressly disclaimed any obligation by the Record Owner under the note and mortgage.

In the mortgagee’s foreclosure action, the Record Owner filed a counterclaim, alleging that the mortgagee: (1) failed to deliver material disclosures as required by TILA; and (2) violated TILA by failing to respond to the Record Owner's notice of rescission. 

 

The lower court dismissed the counterclaim with prejudice, and the mortgagee thereafter voluntarily dismissed the foreclosure action with prejudice.  Despite the voluntary dismissal of the foreclosure action, the Record Owner timely appealed the lower court's ruling dismissing its counterclaim.

 

As you may recall, TILA provides that “the obligor shall have the right to rescind *** by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” 15 U.S.C. § 1635(a). The obligor has three business days following the consummation of the transaction to rescind the loan “until midnight of the third business day following the consummation of the transaction or the delivery of the information and rescission forms required under this section together with a statement containing the material disclosures required under this subchapter, whichever is later, by notifying the creditor, in accordance with regulations of the Board, of his intention to do so.” 15 U.S.C. § 1635(a). However, if the obligor is not provided the required disclosures, with exceptions not relevant here, “An obligor’s right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first ***.” 15 U.S.C. § 1635(f).

The Appellate Court affirmed the lower court’s dismissal of the TILA counterclaim, ruling that the Record Owner was not entitled to rescind the loan transaction under TILA.  The Appellate Court reasoned that based on the exculpatory clause in the mortgage, the Trustee was not an “obligor” as that term is used in the rescission provisions of TILA, 15 U.S.C. 1635(a). 

 

The Appellate Court held that only "obligors" have the right to rescission under TILA.  The Court noted that “[n]either TILA nor Regulation Z defines ‘obligor.’”  

 

The Court did not analyze or mention the provision in Regulation Z that “[i]n a credit transaction in which a security interest is or will be retained or acquired in a consumer's principal dwelling, each consumer whose ownership interest is or will be subject to the security interest shall have the right to rescind the transaction, except for transactions described in paragraph (f) of this section.” 12 CFR 1026.23(a).

In addition, the Appellate Court found that the Record Owner forfeited its argument regarding statutory damages under TILA because the Record Owner failed to raise the issue on appeal.  The Court noted, however, that the Record Owner's claim for statutory damages might have been time-barred even if the Record Owner had not waived its argument.

 

The Appellate Court therefore affirmed the lower court's judgment in favor of the mortgagee and against the Record Owner. 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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.

Our updates are available on the internet, in searchable format, at:
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FYI: 6th Cir Increases Amount of Info and Documents Required for "Verification" of Debt Under FDCPA

The U.S. Court of Appeals for the Sixth Circuit recently reversed an award of summary judgment in favor of a debt collector, where the debtor disputed whether the law firm adequately verified the disputed debt, as required by the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”).

 

In so ruling, the Court broadened the requirements for a debt collector’s response to a debtor’s request for verification of the debt under §1692g(b), by requiring the collector to provide the debtor with notice of how and when the debt was originally incurred, or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.

 

A copy of the opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/14a0153p-06.pdf

 

In October 2008, the defendant law firm debt collector (“Firm”) sent the debtor a notice of delinquency on behalf of the condominium association (“Association”) for failure to make payment on condominium assessments.  The debtor, who used the condominium as a rental property, timely notified the Firm that he disputed the amount of the demand.   The Firm responded by sending a second notice in December 2008, which provided a copy of the debtor’s account ledger, and indicated that a lien would be filed against the property should the debtor fail to make payment within ten days. 

The debtor again disputed the debt.  The debtor’s timely response to the second notice requested the date, bylaw citation and detailed description of every assessment charge against his property, and copies of the relevant bylaws.

 

Pursuant to the debtor’s request, in January 2009, the Firm sent the debtor a third letter, providing a ledger dating back to an August 2006 charge assessed by the previous management company in the amount of $50.  The letter demanded a total of $1,063 for additional assessments, fines, late charges and legal fees, and provided the relevant sections of the condominium bylaws.  The debtor’s responsive letter acknowledged the debtor owed the amount of $25, but again challenged the initial $50 carryover balance while concurrently indicating that he would make payment if the charge was substantiated. 

 

In May 2009, a final letter was sent from the Firm to the debtor again itemizing the outstanding charges which now totaled $1,704, and a Notice of Lien it planned to file on behalf of the Association.  The lien was subsequently filed and recorded.

 

The debtor brought suit against the Firm under § 1692e and § 1692g(b) of the FDCPA, and under state law, claiming that the Firm used false, deceptive or misleading representations in the collection of the debt, and continued collection activity while failing to verify the disputed debt.  The District Court granted summary judgment to the Firm, finding that they properly verified the debt as requested by the debtor and required by the FDCPA, and its collection efforts were not deceptive or misleading in violation of the FDCPA or MCPA.  This appeal followed.

 

As you may recall, Section 1692g(b) of the FDCPA provides, in pertinent part, that  “[i]f the consumer notifies the debt collector in writing” within thirty days of receiving “communication . . . in connection with the collection of any debt… the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt . . .”  The statute, however, does not specify what the process or substance of “verification” requires.

 

Considering the issue of verification, the Sixth Circuit analyzed other Circuit’s rulings interpreting the verification requirements under §1692g(b).  The Fourth Circuit in Chaudrhry v. Gallerizo, held that the verification requirements were met where the debt collector forwarded a detailed copy of the creditor’s computerized summary of the debtor’s loan transactions.  Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999).  Courts in the Ninth and Third Circuits similarly held that providing an itemized accounting of the debt met the verification requirements.  See Clark v. Capital Credit & Collection Servs., 460 F.3d 1162, 1173 (9th Cir. 2006) and Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991). 

 

The Court then turned to the Eighth Circuit’s interpretation of verification in Dunham v. Portfolio Recovery Assocs.  In Dunham, the Eighth Circuit held that information providing the last four digits of the debtor’s social security number that did not match that of the requesting consumer was sufficient ‘verification’ to put the consumer on notice that he was not the actual debtor.   Dunham v. Portfolio Recovery Assocs., LLC, 663 F.3d 997, 1003 (8th Cir. 2011).   Notably, the Eighth Circuit in Dunham remarked that under different facts, a debt collector must do more to meet the verification requirements, but declined to set a high threshold, citing Chaudry’s baseline standard and Clark’s adoption of the same.  

 

The Sixth Circuit interpreted its sister Circuit Courts to suggest that the “baseline” for verification is to enable the consumer to “sufficiently dispute the payment obligation.”  Although the cases are fact-dependent, the prior Circuit Courts’ opinions determined that an itemized accounting detailing transactions that have led to the debt is often best means to meet this baseline requirement.

 

Here, although the Firm attempted to send an itemized accounting of the debt, it failed to respond with an explanation such as a date or description of the nature of the carryover portion of the debt that was at dispute.  Thus, the debtor was left with a choice to pay an amount he did not believe he owed or face the encumbrance of his property.

 

The Sixth Circuit determined that this minimal verification was not be sufficient under the FDCPA.  The Court held that verification under §1692g(b) of the FDCPA “must be interpreted to provide sufficient notice of how and when the debt was originally incurred or other sufficient notice form which the consumer could sufficiently dispute the payment obligation.”  According to the Sixth Circuit, although the provided information does not have to be extensive, “[i]t should provide the date and nature of the transaction that led to the debt.”

 

By failing to properly validate the debt before resuming collection activity, the Court held that the Firm violated §1692g(b). 

 

Accordingly, the Sixth Circuit reversed the lower court’s grant of summary judgment in favor of the Firm, and granted summary judgment to the debtor.

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: 8th Cir Holds Guarantors Not Subject to ECOA

The U.S. Court of Appeals for the Eighth Circuit recently held that an individual who executes a guaranty -- but does not participate in any other aspect of a loan application process -- is not an “applicant” as defined by the federal Equal Credit Opportunity Act (“ECOA”), and thus is not protected under the ECOA.

 

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

 

The husbands of the plaintiff wives (collectively referred to as “Guarantors”) are co-owners of a limited liability company (“LLC”).  The LLC’s only members are Guarantors’ husbands.  Guarantors do not have any legal interest in the LLC. 

 

Between 2005 and 2008, Defendant Lender Bank (“Lender”) made four loans to the LLC, totaling more than $2,000,000.00 (the “Loans”), for the purposes of building a residential subdivision.  These Loans were modified several times. 

 

In connection with each Loan and subsequent modification, Lender required that Guarantors and their husbands all execute personal guaranties (the “guaranties”).  In 2012, the LLC failed to make payments due under the loan agreements causing Lender to declare the Loans to be in default.  Lender proceeded to accelerate the Loans and demanded payment from the LLC, Guarantors’ husbands, and Guarantors. 

 

Guarantors subsequently filed a lawsuit against Lender seeking damages and an order declaring the guaranties void and unenforceable.  Guarantors alleged that Lender required them to execute the guaranties securing the Loans solely because they are married to their respective husbands.  Guarantors claimed this requirement was unlawful discrimination on the basis of marital status, and thus violated the ECOA. 

 

Lender proceeded to file several state-law counterclaims, including breach of the guaranties.  In response and as an affirmative defense, Guarantors argued the guaranties were unenforceable and in violation of the ECOA.  Lender subsequently filed a motion for summary judgment concerning Guarantors’ ECOA claim and its breach-of-guaranty counterclaim.

 

The district court determined that Guarantors were not “applicants” within the meaning of the ECOA, and thus Lender did not violate the ECOA by requiring Guarantors to execute the guaranties.  Accordingly, the district court granted Lender’s motion for summary judgment and this appeal followed.

 

As you may recall, 15 U.S.C. § 1691(a) of the ECOA makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . on the basis of . . . marital status.”   The ECOA defines the term “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.” 15 U.S.C. § 1691a(b).

 

In interpreting the ECOA’s definition of “applicant,” the Federal Reserve promulgated 12 C.F.R. § 202.2(e) (“section 202”), which states, “the term applicant includes guarantors.”

 

The issue on appeal was whether section 202’s definition of “applicant” should apply to Guarantors, and thus allow them to pursue their ECOA claim.  If Guarantors did not fall under the ECOA’s definition of “applicant,” Lender did not violate the ECOA, and the district court properly granted Lender’s motion for summary judgment. 

 

In order to determine whether the Court should defer to the Federal Reserve’s interpretation of the ECOA’s definition of “applicant,” the Court applied the two step test established under Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). 

 

Under Chevron, the Court first determines whether the intent of Congress is clear as to the specific question at issue. If the Court determines that “Congress’ intent is clear, that is the end of the matter.” North Dakota v. E.P.A., 730 F.3d 750, 763 (8th Cir. 2013) (quoting Baptist Health v. Thompson, 458 F.3d 768, 773 (8th Cir. 2006)).  If the Court determines the statute is silent or ambiguous with respect to the specific issue presented, it will proceed to the second step of the Chevron framework, which requires it to consider whether “the agency’s reading fills a gap or defines a term in a reasonable way in light of the Legislature’s design.”  Id. (quoting Baptist Health, 458 F.3d at 773).

 

As to Chevron’s first step, the Court determined that the ECOA clearly stated that a “person does not qualify as an applicant under the statute solely by virtue of executing a guaranty to secure the debt of another.”   

 

In order to qualify as an “applicant” under the ECOA, a person must “apply to a creditor directly for . . . credit, or . . . indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”  15 U.S.C. § 1691a(b).  In addition, a person executing a guaranty is not requesting credit because a guaranty “is collateral and secondary to the underlying loan transaction between the lender and the borrower.” 

 

The Court explained that the execution of a guaranty does not mean a guarantor has requested credit or otherwise been involved in applying for credit.  Accordingly, the Court held that a guarantor does not request credit and cannot qualify as an applicant directly under the ECOA. 

 

The Court next examined a recent Sixth Circuit opinion, which held the ECOA to be ambiguous as to whether a guarantor is an “applicant” under the ECOA.  In RL BB Acquisition, LLC v. Bridge mill Commons Dev. Grp., 754 F.3d 380, 2014 WL 2609616 (6th Cir. 2014) (“RL BB Acquisition”), the Sixth Circuit acknowledged “a guarantor does not traditionally approach a creditor herself for credit. Rather, . . . a guarantor is a third party to the larger application process.”  Id. at 4.  The Court agreed with RL BB Acquisition on this point as it demonstrates a guarantor unambiguously does not request credit.  The Eighth Circuit stated that this should have ended the RL BB Acquisition’s court’s inquiry because when “Congress has manifested its intention, we may not manufacture ambiguity in order to defeat that intent.”  Bifulco v. United States, 447 U.S. 381, 387 (1980).

 

However, the Sixth Circuit in RL BB Acquisition further held that “a guarantor does formally approach a creditor in the sense that the guarantor offers up her own personal liability to the creditor if the borrower defaults.” Id.  The Eighth Circuit disagreed stating that a “guarantor engages in different conduct, receives different benefits, and exposes herself to different legal consequences than does a credit applicant.”  As a result, the Eighth Circuit declined to apply the RL BB Acquisition’s holding to Guarantors’ appeal.

 

Lastly, the Eighth Circuit determined its holding comported with the ECOA’s purpose of ensuring fair access to credit “by preventing lenders from excluding borrowers from the credit market based on the borrowers’ marital status.”  The Court explained that its holding does not interfere with the ECOA’s purpose because a lender does not exclude the guarantor from the lending process or deny the guarantor access to credit by requesting the execution of a guaranty.  The Court explained that Guarantors did not claim they were excluded from the lending process due to their marital status, but instead argued they were improperly included due to their marital status.  Accordingly, the Court held its interpretation of “applicant” did not offend the ECOA’s underlying policy and purpose. 

 

Therefore, the Eighth Circuit held that the text of the ECOA is not ambiguous regarding whether a guarantor constitutes an “applicant,” and further held that a guarantor is not protected from marital-status discrimination under the ECOA.  Accordingly, the Court affirmed the district court’s ruling.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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.

Our updates are available on the internet, in searchable format, at:
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FYI: Ill App Ct Holds HOA Lien Not Extinguished by Foreclosure, Even If HOA Was Made a Party to the Foreclosure

The Illinois Appellate Court, First District recently held that a lien for unpaid homeowner association payments is not extinguished by a foreclosure and sale, where the purchaser fails to make the payments required of it by Illinois' Condominium Property Act, even if the homeowner's association was made a party to the foreclosure action. 

 

A copy of the opinion is available at http://www.illinoiscourts.gov/Opinions/AppellateCourt/2014/1stDistrict/1130962.pdf. 

 

A bank purchased a condominium unit at a judicial sale.  Several years later, the homeowner's association ("HOA") for the condominium unit filed suit, seeking possession of the condominium unit in connection with unpaid assessments. The trust sought a lien in the total amount of unpaid assessments for the subject property.  

 

The HOA moved for summary judgment, and the bank responded, contending that it was not responsible for any unpaid assessments incurred prior to its purchase.

 

The lower court granted summary judgment in favor of the HOA, and the bank filed a motion to reconsider, which was denied.  The bank appealed. 

 

As you may recall, Illinois' Condominium Property Act (“Condominium Act”) provides that the purchaser of a condominium unit at a judicial foreclosure sale must pay its proportionate share of common expenses for the unit "assessed from and after the first day of the month after the judicial foreclosure sale."  765 ILCS 605/9(g)(3).  Such payment "confirms the extinguishment of any lien created [under section 9(g)(1) in connection with previous unpaid assessments] by virtue of the failure or refusal of a prior unit owner to make payment of common expenses..."  Id. 

 

Here, the dispute turned on the HOA's attempt to obtain judgment in the total amount of the alleged unpaid assessments. The bank contended that same was improper, in that by statute it was only liable for a portion of those expenses.  The HOA, for its part, contended that the lien for unpaid assessments would only be extinguished by payment of the purchaser's share of common expenses – and, as the bank had not paid its proportionate share, the HOA argued that the lien was not extinguished. 

 

The Appellate Court ruled in favor of the HOA, noting that the plain language of the Condominium Act indicates that "a lien created under section 9(g)(1) is not fully extinguished following a judicial foreclosure and sale until the purchaser makes a payment for assessments incurred after the sale." 

 

In addition, the Appellate Court observed that if it were to side with the bank and hold that a purchaser of a unit after a foreclosure sale may never be required to pay assessments that are incurred prior to the foreclosure sale, "we would be holding that a lien created under section 9(g)(1) is fully extinguished by the foreclosure and sale - which would render section 9(g)(3) superfluous."  

 

The bank countered that the law in Illinois is well-settled that all outstanding claims on property that is the subject of a foreclosure and sale are extinguished, citing the Illinois Mortgage Foreclosure Law and related case law. 

 

The Appellate Court did not find the bank's argument persuasive, noting that where general and specific statutory provisions conflict, it is the "specific statutory provision that must control over the general rule of foreclosure law cited by [the bank]." 

 

Accordingly, the Appellate Court rejected the bank's argument, and held in favor to the HOA. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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.

Our updates are available on the internet, in searchable format, at:
http://updates.mwbllp.com