FYI: 9th Cir Affirms Denial of Class Cert in HAMP Loan Mod MDL

In a consolidated multi-district litigation putative class action involving allegations of improper handling of HAMP loan modifications by a large mortgage servicer, the U.S. Court of Appeals for the Ninth Circuit recently affirmed the district court's order denying the putative class plaintiffs' motion for class certification, holding that the district court correctly determined that individual issues predominated over common issues.

 

The opinion was not published, and is non-precedential.  A copy of the opinion is available at:  Link to Opinion

 

Among other things, the putative class plaintiffs alleged that the defendant servicer supposedly improperly denied permanent HAMP loan modifications, and supposedly breached loan modification agreements with homeowners.

 

The Ninth Circuit began its analysis by recounting that a ruling on class certification will be reversed only if the district court clearly abuses its discretion.  The Court then addressed whether the district court applied the correct legal standard under Federal Rule of Civil Procedure 23, finding that there was no dispute that it did so.

 

The dispute before the Court, however, was whether "the district court's findings of fact, and its application of those findings of fact to the correct legal standard, were illogical, implausible, or without support in inferences that may be drawn from facts in the record." This is what the putative class plaintiffs argued.

 

The Court found that the district court did not abuse its discretion in denying class certification under Rule 23(b)(3) because, as required by the Ninth Circuit's decision in Wang v. Chinese Daily News, Inc., "the district court's analysis focused on the relationship between the common and individual issues in the case … [determining] that individual issues predominated over common issues, because determination of the deadline by which [the defendant mortgagee] was allegedly required to grant or deny permanent modification could not be made 'simply by identifying the MED [Modification Effective Date] as stated in the TPP [Trial Payment Plan Agreement].'"

 

The Court reasoned that "such a determination would also require inquiry into issues unique to each class member" and therefore that class treatment was not appropriate.

 

The Ninth Circuit noted that the district court supported its decision to deny class certification with specific examples, such as "the parties' course of conduct, changes in income, inaccurately or incompletely reported income, oral and written representations regarding documentation still needed and other modification options …." The Court agreed with the district court that such "additional considerations were critical to determining not only whether [defendant] had breached the TPP, but also the amount of damages."

 

The Court also found that the district court "did not abuse its discretion by denying class certification under Rule 23(b)(1), because Plaintiffs failed to 'affirmatively demonstrate [their] compliance' with Rule 23(b)(1).'" Specifically, the Ninth Circuit noted that their "arguments under Rule 23(b)(1) were 'cursory' and lacked 'any substantive explanation as to why the reasoning in [the cases Plaintiffs cited] would support certification on the facts and law in this case."

 

Finally, the Ninth Circuit found that "the district court did not abuse its discretion by denying class certification under Rule 23(b)(2)" because the putative class plaintiffs raised a new argument for the first time on appeal by framing "their legal theory as seeking declaratory relief to qualify under Rule 23(b)(2)" while they argued to the district court that their legal theory was based on injunctive relief prohibiting the defendant from collecting certain fees and requiring corrective reporting.  Because the argument was not raised in the district court, the Court held it was waived.

 

 

 

 

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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FYI: SD Alabama Rules in Favor of Loan Servicer on FDCPA "Bona Fide Error" Defense

The U.S. District Court for the Southern District of Alabama recently granted summary judgment in favor of a mortgage loan servicer and the trustee of a mortgage backed securities trust in a putative class action alleging violations of the federal Fair Debt Collection Practices Act ("FDCPA"), ruling that the "bona fide error" defense applied to the servicer and that the trustee was not a "debt collector" under the FDCPA.

 

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

 

A borrower defaulted on his mortgage loan and filed a petition under Chapter 7 of the U.S. Bankruptcy Code in June of 2012, listing the mortgage loan in his schedules.  A few months later, he was granted a discharge.

 

In January of 2013, the loan servicer sent the borrower a letter advising that it would become the servicer of the loan effective February 1, 2013. Between February 1, 2013, when the servicing began performing it duties, and December 1, 2013, the borrower did not receive any written communications from the servicer.

 

In September of 2013, the borrower received another letter from the servicer advising that the loan had been transferred to a new owner, a bank acting as trustee of a mortgage backed securities trust.

 

The mortgage on the borrower's home was foreclosed and the loan servicer purchased the property for $238,800 at the foreclosure sale in November of 2013.

 

After the foreclosure sale, the borrower received two monthly billing statements from the servicer dated December 2, 2013 and December 16, 2013.  These statements reflected the total outstanding principal on the loan without mentioning either the foreclosure sale or the borrowers bankruptcy discharge. They did, however, contain a disclaimer that stated to the extent the borrower's obligations under the loan had been discharged, the statement was for informational purposes only and was not an attempt to collect the debt.

 

The borrower filed a putative class action on behalf of himself and similarly situated borrowers against the loan servicer and trustee, alleging that the two December statements violated sections 1692d, 1692e and 1692f(1) of the FDCPA because the plaintiff's debt had been discharged in bankruptcy and because the statements did not credit the plaintiff with the amount received at the foreclosure sale.

 

The servicer's investigation during discovery revealed that the loan had been correctly coded as a foreclosure, which prevented the servicer's computerized system it uses from sending out statements automatically.  However, sometime later the foreclosure code was inadvertently removed, which caused the system to issue the two statements.  The servicer asserted during discovery that this mistake was limited to the borrower and did not happen as to any other loans being serviced.

 

The defendants raised several affirmative defenses, one of which generally alleged that the plaintiff's claims were barred by the FDCPA's bona fide error defense.

 

The defendants moved for summary judgment and also filed a motion to seal certain exhibits in support of the motion.

 

The Court first addressed the motion to seal, in which the defendants sought to exclude from public view four exhibits containing loan codes, describing the functions of the servicer's asset management department, the servicer's internal FDCPA policy and portions of its FDCPA training course for employees because such information is confidential and proprietary.

 

The Court agreed, finding that the common law presumption in favor public access to the judicial system was outweighed by the servicer's interest in protecting the privacy of its proprietary business operations and the irreparable harm it would suffer if the information became public.

 

Turning to the bona fide error defense, the Court explained that it "forestalls FDCPA liability were a defendant's violation was unintentional and resulted from a bona fide error notwithstanding defendant's procedures reasonably adapted to avoid such errors."

 

In response, the borrower argued that the bona fide error defense is an affirmative defense, and that the servicer did not meet the heightened pleading requirements applicable to affirmative defenses.

 

Although the Court agreed that "federal courts have required defendants to plead the FDCPA bona fide error defense with particularity" and in order to "satisfy Rule 9(b), the defense must articulate who, what, when, where and how the bona fide error occurred", the Court held that the plaintiff's argument failed because he waited too long to raise it.

 

Specifically, the Court held that the borrower failed to move to strike the insufficiently pleaded defense within 21 days after service of the answer as required by Rule 12(f)(2). The Court found that the plaintiff "cannot raise this technical pleading defect for the first time on summary judgment as a means of derailing the Rule 56 Motion and excising that defense from the case."

 

The Court then addressed the parameters of the bona fide error defense, explaining that FDCPA subsection 1692k(c) provides that "[a] debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 

 

The Court noted that, "[a]s construed by the courts, this defense is unavailable for mistakes of law or misinterpretation of the FDCPA's requirements, but instead is designed to 'protect against liability for errors like clerical or factual mistakes." 

 

The Court further explained that in order to "prevail on this defense, 'a debt collector bears a three-part burden of showing that its FDCPA violation (1) was not intentional; (2) was a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to avoid any such error.' … 'The failure to meet any one of those three requirements is fatal to the defense.'" 

 

The Court found that the servicer satisfied the first prong, which is a subjective test, and established the error was unintentional because the evidence clearly showed the servicer did not intend to send the December statements while the loan was in foreclosure and only did so due to its employee's coding error.

 

As to the second prong, which "serves to impose an objective standard of reasonableness upon the asserted unintentional violation," the Court explained that "[a] bona fide error is a mistake that occurred in good faith" before finding that the facts supported a "compelling inference that [the servicer's] mistake in issuing the December 2013 billing statements to [the borrower] was made in good faith and was objectively reasonable (i.e., not a contrived mistake)."

 

Regarding the third prong, the Court explained that "the debt collector has an affirmative statutory obligation to maintain procedures reasonably adapted to avoid readily discoverable errors." This is a two-step, "'fact intensive inquiry' that proceeds 'on a case-by-case basis and depend[s] upon the particular acts and circumstances of each case.'"

 

The Court agreed with the servicer that its "general training procedures and its specific procedures for pre-foreclosure review" taken together, "adequately reflects that [the servicer] has mechanical, orderly processes in place to avoid errors, and that those procedures were reasonably adapted to avoid the specific error that occurred here (i.e., the reactivation of a borrower's loan on pre-foreclosure review, thereby changing the … code on the loan and erroneously ending suppression of monthly billing statements)."

 

The Court rejected the borrower's argument that the servicer's bona fide error defense failed because it had no procedure to avoid sending statements to borrowers whose debts were discharged in bankruptcy, because the case law is clear that "the bona fide error defense must be examined as to 'the specific error at issue'" which in the case at bar was the mistaken reactivation of the loan by the employee performing the pre-foreclosure review, not the servicer's "general practices concerning borrowers whose debts have been discharged."

 

Accordingly, the Court found that the servicer met its burden of establishing that it was entitled to the bona fide defense, that no genuine issue of fact existed as to this defense, and that the servicer was entitled to summary judgment as a matter of law.

 

The Court then quickly determined that, as a matter of law, the trustee bank was also entitled to summary judgment because the undisputed evidence showed that it was not a debt collector within the meaning of the FDCPA. Instead, the trustee bank was the owner of the subject loan and the other loans in the trust and thus could not be a debt collector because those debts were not "owed or due another at the time of collection."

 

The defendants' motion for summary judgment was granted and the plaintiff's claims dismissed with prejudice.

 

 

 

 

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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FYI: 7th Cir Rules in Favor of Bank, Sanctions Borrower and Guarantors for "Clearly Frivolous" Appeal

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a district court's refusal to enjoin a bank's state court action to collect on a promissory note and related guaranties, holding that the borrower's appeal was frivolous and that sanctions were appropriate under Federal Rule of Appellate Procedure 38.

 

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

 

A bank sued a corporate borrower and related parties in federal district court in 2012 to collect on a promissory note and enforce guaranties. The defendants moved to dismiss, arguing that because the bank had purchased the subject loans from the Federal Deposit Insurance Corporation as receiver for the failed original lender, the federal district court did not have diversity jurisdiction under the Seventh Circuit's ruling in Federal Deposit Ins. Corp. v. Elefant. 

 

The district court dismissed the complaint without prejudice, allowing the plaintiff 60 days to file an amended complaint. Before the deadline expired, the bank filed a notice of under Federal Rule of Civil Procedure 41 announcing that it was dismissing the case without prejudice. The following day, the district court entered an order dismissing the case without prejudice pursuant to the notice of voluntary dismissal under Rule 41.

 

Within less than a week, the bank filed a similar complaint in Illinois state court. The defendants moved to dismiss the state court action, arguing that the dismissal of the bank's prior federal action precluded the bank's state court claims. The state court rejected this argument, but found that the bank's complaint "inadequately alleged that the relevant loan documents had been transferred to [the bank]" and gave the bank leave to amend.

 

The borrower then filed a second federal action, seeking to enjoin the bank's state court action pursuant to the All Writs Act, 28 U.S.C. § 1651(a) and the relitigation exception to the Anti-Injunction Act, 28 U.S.C. § 2283.

 

The district court denied the request and dismissed the borrower's federal case with prejudice because there was never a judgment on the merits in the bank's original federal case, and the borrower's action was "an unreasonable and vexatious multiplication of proceedings already pending in state court."

 

The borrower appealed the federal district court's ruling.  On appeal by the borrower, the Seventh Circuit explained that under the Anti-Injunction Act, "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."

 

The borrower argued that an injunction against the state court action was needed because, under the "religitation exception" under the Anti-Injunction Act, "a party with a favorable federal judgment may 'protect that judgment by enjoining repetitive state court proceedings instead of relying on a claim or issue preclusion defense."

 

Reasoning that "[a]s a general rule, federal common law borrower the preclusion principles of the laws of the state in which the federal court that dismissed the diversity suit sat", the Seventh Circuit applied Illinois law to decide "the preclusive effect of the dismissal of [the bank's] first federal case, which was brought in federal court in Illinois under diversity jurisdiction", finding that the "relitigation exception does not authorize an injunction here. Under Illinois law the dismissal of [the bank's] federal case simply did not preclude a later suit because a dismissal 'without prejudice' is not final … and a non-final decision is not subject to preclusion defenses. … If a court dismisses a complaint without prejudice but with leave to amend, and then allows the plaintiff to dismiss voluntarily without prejudice, the dismissal has no res judiciata or claim preclusive effect."

 

The Seventh Circuit also rejected the borrower's two remaining arguments. First, it distinguished its decision in Muhammad v. Oliver, which held that "when a suit is abandoned after an adverse ruling against the plaintiff, the judgment ending the suit, whether or not it is with prejudice will generally bar bringing a new suit that arises from the same facts as the old one" because in the case at bar, "there was no final judgment on any claim by [the bank]. The only ruling that preceded it voluntary dismissal was expressly 'without prejudice' to its ability to file an amended complaint curing the problems the court had perceived."

 

Second, the Seventh Circuit rejected the borrower's argument that the doctrine of "springing finality" ended the first case on the merits. Under that doctrine, a dismissal that 'gives the plaintiff time to fix the problem that led to dismissal' becomes final once the time to cure as elapsed." The Court reasoned that a final judgment under Federal Rule of Civil Procedure 58 is a better and clearer way of disposing of lawsuits in federal district court and, in any event, "a conditional dismissal ripens into a final order only when the plaintiff fails to act within the specified time" and, in the case at bar, the bank voluntarily dismissed without prejudice before the 60 days to amend expired.

 

The Court then explained that even if the state court wrongly denied the borrower's motion to dismiss, "[t]he relitigation exception to the Anti-Injunction Act still would not authorize an injunction … because [the borrower] took its claim preclusion argument to the state court first. The state court ruled that preclusion does not apply to [the borrower's] case, and federal courts must respect that ruling." This is because the Supreme Court of the United States held in Parsons Steel, Inc. v. First Alabama Bank that "when a state court has rejected a claim preclusion or res judicata defense based on a prior federal court judgment, then 'the Full Faith and Credit Act requires that federal courts give the state-court judgment, and particularly the state court's resolution of the res judicata issue, the same preclusive effect it would have had in another court of the same State."

 

The Seventh Circuit affirmed the district court's judgment, concluding that the district court "correctly refused to enjoin [the bank's] litigation in state court." Once the borrower "lost in state court it had no reasonable grounds to seek an injunction in federal court. Its proper remedy was to appeal the decision in the state court system and, if necessary, to seek review by the Supreme Court of the United States."

 

The bank moved for sanctions under Federal Rule of Civil Procedure 11 after the parties filed their briefs on the merits. The Court found that the bank's reference to Rule of Civil Procedure 11 was incorrect because sanctions on appeal are governed by Federal Rule of Appellate Procedure 38 instead of Rule 11, but held that did not matter because Rule 38 requires "either a separate motion by the appellee or notice from the court as well as a reasonable opportunity to respond" and the borrower received both because it responded to the motion and suffered no prejudice due to the bank's "labelling mistake."

 

The Court explained that "Rule 38 authorizes a United States Court of Appeals to award damages and single or double costs to an appellee when an appeal is frivolous" and "[a]n appeal is frivolous 'when the result is obvious or when the appellant's argument is wholly without merit."

 

Although it cautioned that Rule 38 should not be invoked lightly because "sanctions could discourage parties from presenting reasonable and good faith arguments," the Court found the appeal was "clearly frivolous."

 

By continuing to litigate its preclusion defenses in both federal and state courts, the Court found that the borrower's "conduct flaunts the principles of comity and federalism that animate both the Full Faith and Credit Act and the Anti-Injunction Act" and "that sanctions are appropriate to protect the interests of the courts, [the bank], and other litigants."

 

The judgment of the district court was affirmed and the Court established a briefing schedule for the parties to establish the bank's damages caused by the frivolous appeal. 

 

 

 

 

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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FYI: Ohio Sup Ct Rules Defectively Executed Mortgage Still Provides Constructive Notice

The Supreme Court of Ohio recently held that a mortgage defectively executed but properly recorded still provides constructive notice of its contents.

 

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

 

The borrowers executed a promissory note and a mortgage.  The notary acknowledgment on the mortgage was left blank.  The mortgage was recorded with the notary section incomplete. The mortgage was later assigned.

 

The borrowers later initiated a Chapter 13 bankruptcy asking to avoid the mortgage as defectively executed under Ohio Rev. Code § 5301.01.  The U.S. Bankruptcy Court for the Southern District of Ohio certified the issue to the Supreme Court of Ohio. The Court agreed to answer.

 

The Supreme Court of Ohio began its analysis by examining the relevant parts of the statutes at issue.  Ohio Rev. Code § 5301.01(A) sets forth Ohio mortgage requirements:

 

A . . . mortgage . . . shall be signed by the . . . mortgagor . . . The signing shall be acknowledged by the . . . mortgagor . . . before a judge or clerk of a court of record in this state, or a county auditor, county engineer, notary public, or mayor, who shall certify the acknowledgement and subscribe the official's name to the certificate of the acknowledgment.

 

In addition Ohio Rev. Code § 1301.401(B) provides that recording of certain documents constitutes constructive notice:

 

The recording with any county recorder of any document described in division (A)(1) of this section . . . shall be constructive notice to the whole world of the existence and contents of [the] document as a public record and of any transaction referred to in that public record, including, but not limited to, any transfer, conveyance, or assignment reflected in that record.

 

§ 1301.401(A)(1) names "[a]ny document described or referred to" in Ohio Rev. Code § 317.08.  The documents listed in Ohio Rev. Code § 317.08(A)(19) include "[m]ortgages, including amendments, supplements, modifications, and extensions of mortgages . . ."

 

The Court rejected the borrower's argument that Ohio Rev. Code § 1304.401 only applied to transactions governed by Ohio's Uniform Commercial Code ("UCC") because it is located in the portion of the Ohio Revised Code that contains the UCC. 

 

Instead, the Supreme Court of Ohio found that R.C. 1301.401 states that it applies to "any document described in division (A)(1)" of the section.  R.C. 1304.401(A)(1) states that documents described in § 317.08 are included in its purview.  In turn, R.C. § 317.08(A)(19) explicitly includes mortgages.  Therefore, the Court held that R.C. 1304.401 applies to all recorded mortgages in Ohio based on the unambiguous statutory language.

 

The Court also disagreed with the borrower's argument that a mortgage does not provide constructive notice if it is not properly executed under Ohio Rev. Code § 5301.25(A).  The Supreme Court of Ohio explained that R.C. 1301.401 does not require that a mortgage be "properly executed" to provide constructive notice, but rather provides that if the document recorded is a "mortgage" then notice of its contents is provided.

 

Last, the Court also rejected the borrowers' argument that under Ohio Rev. Code §§ 5301.01(B) and 5301.23(B) constructive notice is not provided for defectively executed mortgages.  The Supreme Court of Ohio noted that those statutes set forth two instances where defectively executed mortgages provide constructive notice.  However, the Court reasoned that this did not preclude the legislature from "recognizing other instances in which the recording of a defectively executed mortgage can provide constructive notice" and thus R.C. 1301.401 was compatible with the provisions of R.C. 5301.01(B) and 5301.23(B).

 

Accordingly, the Supreme Court of Ohio held that R.C. 1301.401 applies to all recorded mortgages in Ohio, and thus that statute requires that a mortgage defectively recorded under R.C. 5301.01 provides constructive notice of its contents.

 

 

 

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

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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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and

 

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FYI: 8th Cir BAP Holds Lien Against Only One Tenant by Entirety Avoidable in Bankruptcy

The U.S. Bankruptcy Appellate Panel for the Eighth Circuit recently affirmed an order of the bankruptcy court granting a debtor's motion to avoid a judgment creditor's lien on the debtor's residence held in tenancy by the entirety with his non-debtor spouse, holding because the lien "fixed" under the Bankruptcy Code and thus impaired the debtor's claimed exemption, it was avoidable.

 

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

 

The debtor and his wife purchased their home in Missouri in 1995, taking title by the entireties. A creditor of the husband obtained a judgment against him (and not also his wife) in the amount of approximately $765,000 in Missouri state court and registered the judgment in January of 2015.

 

The husband filed a voluntary petition under Chapter 7 of the Bankruptcy Code. He listed the home in his schedules, valuing it at $105,000, with $52,500 as his apportioned interest in the home, and also claimed a $15,000 exemption pursuant to Missouri law and 11 U.S.C. § 522(b)(3)(B). The creditor did not object to the debtor's claims exemptions.

 

The debtor then filed a motion to avoid the judgment lien against the home.  The creditor objected, arguing that because the judgment lien did not attach to the home, "its lien did not fix upon the residence nor impair the debtor's exemption for lien avoidance purposes."

 

The bankruptcy court construed the Missouri statute governing judgment liens and the Supreme Court of the United States's ruling in Farrey v. Sanderfoot to determine the meaning of "fixing" under § 522(f)(1) and concluded as a matter of law that the judgment lien "affixed" to the home. It then determined under § 522(f)(2) that the lien impaired the debtor's exemptions, overruled the creditor's objection, and granted the debtor's motion to void the judgment lien as against the home. The creditor appealed.

 

On appeal, the creditor conceded that its judgment lien "attached" to the home, but argued that "its judgment lien did not fix upon the debtor's tenant by the entirety property interest in the residence, because the debtor did not have an interest to which its judgment lien could fix."

 

The Eighth Circuit Bankruptcy Appellate Panel began its discussion by explaining that under § 522(l) of the Bankruptcy Code, "[i]n the absence of an objection, property claimed as exempt is exempt … [and, under § 522(c)(2),] [e]xempt property is not liable during or after the case for any debts, except debts secured by liens not avoided." This means that judgment liens that are valid and pre-date the filing of the bankruptcy petition "ordinarily survive the bankruptcy case and can be enforced on exempt property, unless such liens are avoided."

 

The Bankruptcy Appellate Panel then explained that § 522(f)(1)(A) allows a debtor to avoid a judgment lien on exempt property "to the extent that such lien impairs an exemption to which the debtor would have been entitled under subsection (b) of this section…."

 

Pointing out that the Supreme Court in Farrey v. Sanderfoot held that "under § 522(f)(1), a debtor cannot avoid a lien, unless the debtor acquired the property interest before the lien fixed", the Bankruptcy Appellate Panel reasoned that the issue before it was "whether the debtor had an interest in the residence, to which [the creditor's] judgment lien attached."

 

The Eighth Circuit Bankruptcy Appellate Panel reasoned that the nature of a debtor's property interest is a question of state law, and because there was no dispute the debtor took title by the entireties in 1995, the Panel found that his interest in the property pre-dated the judgment lien.

 

The Panel then turned to address whether the judgment lien "fixed" to the debtor's home. Construing Missouri's statute governing judgments, the court found that the judgment lien "fixed" in January of 2015 when it was entered and registered, clearly after the debtor had acquired his interest in the property.

 

The Eighth Circuit Bankruptcy Appellate Panel rejected the creditor's final argument that Farrey v. Sanderfoot "requires a lien to have attached under relevant law in a technical, enforceable sense in order for a debtor to enforce a lien … [because] tenants by entirety property is not liable for the judgment debt of one spouse."  Because the judgment was only against the husband debtor and not also against the debtor's wife, the judgment did not attach as an enforceable lien on the home.

 

The Court reasoned that § 522(f)(1) was less restrictive than Missouri law on the issue of "what constitutes a valid, enforceable judgment lien" and "the meaning of 'fix' for lien avoidance purposes. Congress explained that the purpose of lien avoidance in § 522 was to allow the debtor to 'void any judicial lien on exempt property … If only choate liens or perfected liens were avoidable, then Congress would have used a technical term such as 'attach.' Instead, Congress used 'fixing,' which promotes the avoidance of judicial liens, even inchoate, unenforceable, or unperfected judicial liens. Even if we concede that the residence was not subject to [the creditor's] lien and that that the lien was therefore unenforceable, we would still find that an unenforceable judgment lien arose, so that it is possible for the debtor to avoid it under § 522(f)."

 

Finding that the judgment lien "fixed" and thus impaired or diminished the value of the debtor's claimed exemption, the Eighth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's order granting the debtor's motion to avoid the judgment creditor's lien.

 

 

 

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

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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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Financial Services Law Updates

 

and

 

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and

 

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FYI: 11th Cir Holds "Door Knocker" Loss Mit Communications Did Not Violate FDCPA or FCCPA

The U.S. Court of Appeals for the Eleventh Circuit recently upheld the dismissal of a borrower's allegations that a mortgage loan servicer violated the federal Fair Debt Collection Practices Act (FDCPA)  and the Florida Consumer Collection Practices Act (FCCPA) by leaving a letter in the borrower's mailbox, posting a letter to his front door, and sending a letter to the borrower via registered mail, all offering the borrower various sums of financial assistance if he vacated the property.

 

The Court held that the servicer's actions did not constitute a demand for payment under the FDCPA and FCCPA.

 

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

 

The borrower obtained a mortgage loan secured by his residence.  The borrower defaulted and the mortgagee foreclosed in November 2009.  After several delays, including the filing and administration of the borrower's petition for bankruptcy relief, the property was sold in a foreclosure sale in November 2013.  A writ of possession was issued in August 2014.

 

After the property was sold, the mortgage loan servicer's employee left a letter in the borrower's mailbox offering various sums of financial assistance if the borrower vacated the property by a certain date.  The employee returned to the residence the next day and posted the letter on the front door, and the day after that sent the letter to the borrower via registered mail.

 

The Eleventh Circuit held that the borrower's allegations failed to state a claim against the mortgage loan servicer or any of the other defendants.  In particular, the Court noted that the servicer offered to provide the borrower funds if he would vacate the property.  The Eleventh Circuit held that these actions did not constitute a demand for payment under the FDCPA and FCCPA.

 

As you may recall, the FDCPA imposes civil liability on "debt collectors" for certain prohibited debt collection practices.  In order to state a plausible FDCPA claim, "a plaintiff must allege, among other things, (1) that the defendant is a debt collector and (2) that the challenged conduct is related to debt collection."  Reese v. Ellis, Painter & Adams LLP, 678 F.3d 1211, 1215 (11th Cir. 2012) (quotation omitted).

 

The FDCPA and the FCCPA have certain parallels, including nearly identical definitions of "communication," "debt," and "debt collector." 15 U.S.C. §§ 1692a(2), (5)-(6); FLA. STAT. §§ 559.55(2), (6)-(7).

 

The FDCPA and FCCPA define a "debt collector," in relevant part, as one who engages "in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. § 1692a(6); Fla. Stat. § 559.55(7).

 

The FDCPA prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt."  15 U.S.C. § 1692e. When determining whether a letter is "in connection with the collection of any debt," courts look to the language of the letter, specifically to statements that demand payment and mention additional fees if payment is not tendered.  Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1302 (11th Cir. 2014). 

 

The Court noted that a demand for payment need not be express, and may be implicit.  An example of a collection communication is a letter that indicates that it is being sent to collect a debt, states the amount of the debt, describes how the debt may be paid, and provides the address to which the payment should be sent and a phone number.  Id. at 1303 n.2.

 

The FCCPA prohibits anyone, in the course of collecting debts, from using threats or force, and from disclosing information concerning the existence of a debt known to be reasonably disputed. Fla. Stat. §§ 559.72(2), (6).  "Debt" is defined as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment."  Fla. Stat. § 559.55(6).

 

In ruling on the servicer's motion to dismiss, the Eleventh Circuit held that, even accepting all of the borrower's allegations as true, the borrower failed to state a claim.  The servicer offered the borrower money to vacate the property.  The Court held that "[w]hile a demand for payment need not be express to fall under the protections of the FDCPA, the facts alleged show no demand of any sort."

 

As to the borrower's FCCPA claim, the Eleventh Circuit held that borrower failed to allege facts showing that the servicer was collecting a consumer debt, as defined in the FCCPA.  See Fla. Stat. §§ 559.55, 559.72. 

 

The Court noted that the allegations only indicated that the servicer, through its employee, attempted to leave notices informing the borrower that he was eligible to receive financial relocation assistance.  The Court further noted that the borrower did not allege that anyone ever asked him for payment for a debt, or told him he had an obligation to pay the servicer for a debt.

 

Finally, the Eleventh Circuit rejected the borrower's argument that the district court abused its discretion in failing to grant him leave to file a second amended complaint, holding that "[t]he argument is frivolous.  Filing a second amended complaint would be a futile exercise."

 

Accordingly, the Eleventh Circuit affirmed the district court's dismissal of the borrower's allegations.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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