FYI: Maryland App Court Holds No Time Limit to Attack a Judgment as "Void" for Lack of Licensure

Under a recent ruling from Maryland's Court of Special Appeals, a judgment debtor's lawsuit requesting that the court declare a judgment "void" for lack of licensure by the creditor is not subject to any statute of limitations period.  However, the Court also held that claims arising from the "void" judgment may be subject to Maryland statutes of limitations.

 

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

 

A debt buyer obtained a judgment against the plaintiff on an unpaid delinquent credit card account in 2009.  At the time the debt buyer obtained the judgment, it was not licensed to act as a debt collector in Maryland.

 

More than three years later, the plaintiff sued the debt buyer seeking a declaratory judgment that the debt buyer's 2009 judgment was "void," because it lacked the required license.

 

The debt buyer moved to dismiss the complaint arguing that the plaintiff failed to bring his claim within Maryland's three-year limitations period for civil actions. The trial court agreed with the debt buyer and dismissed the complaint.

 

On appeal, the plaintiff argued that his complaint was not barred by the three-year limitations period because an action to declare a judgment void may be brought at "any time" under an earlier Maryland appellate court decision.

 

The Court of Special Appeals disagreed and determined that the earlier opinion did not address actions to void judgments.  However, after surveying federal and state decisions from outside Maryland, it nonetheless agreed with the plaintiff that a suit seeking to declare a judgment as "void" is not subject to a statute of limitations.

 

Although there is no limitations period on an action to void a judgment, the Court pointed out that its ruling does not extend to other remedies the plaintiff may seek.

 

In particular, the plaintiff's claim for unjust enrichment was subject to the three-year limitations period. Following entry of the judgment, the debt buyer obtained an execution against the plaintiff's bank account sufficient to pay the entire judgment. The Court rejected the plaintiff's argument that his unjust enrichment claim was not subject to any limitations period at all or, in the alternative, it was subject to Maryland's 12-year limitations period for actions on judgments.

 

The Court also affirmed the dismissal of the plaintiff's claim under the Maryland Consumer Debt Collection Act (MCDCA) because it was asserted beyond the applicable three-year limitations period.

 

The plaintiff argued that the debt buyer had a duty to disclose it was not licensed and, because it did not make the disclosure, the time to file his MCDCA claim should be extended. The debt buyer disagreed, noting no decisional law supported the plaintiff's argument.

 

The Court did not address whether Maryland law imposed such a requirement on the debt buyer, but found that even if it did, the plaintiff himself was obligated to inquire into the debt buyer's license status, if not when he was served with the debt buyer's complaint, or even its judgment, then certainly, at the latest, he was obligated to inquire in April 2009 when he learned his bank account was garnished.

 

Thus, even if the plaintiff were correct, the Court concluded, the limitations period on his MCDCA claim would have run in 2012.

 

 

 

 

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: Fla App Ct (3rd DCA) Withdraws and Replaces Its Prior "Foreclosure Statute of Limitations" Ruling in Beauvais

Withdrawing and substituting its prior opinion in Deutsche Bank Trust Co. America v. Beauvais, 40 Fla. L. Weekly D1 (Fla. 3d DCA Dec. 17, 2014), the District Court of Appeal of the State of Florida, Third District, earlier today held that:

 

1.  Under Florida law, dismissal of a foreclosure action accelerating payment on one default does not bar a subsequent foreclosure action on a later default, if the subsequent default occurred within five years of the subsequent action; and

 

2.  Whether a dismissal is with or without prejudice is irrelevant to a lender's right to file subsequent foreclosure actions on subsequent defaults; and

 

3.  The mortgagee in this case was under no obligation, contractually or legally, to "decelerate" this loan following dismissal; and

 

4.  Under Florida Statute § 95.281(1)(a), the date of termination of the mortgage can be determined from the face of a recorded document, and is five years after that maturity date.

 

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

 

A mortgagee appealed from a final summary judgment denying foreclosure of a mortgage securing a $1,440,000 promissory note. The complaint filed by the mortgagee on December 18, 2012, alleged a payment default on October 1 2006, "and all subsequent payments."

 

The complaint, in addition to naming the borrower, joined the condominium owners association (COA) for the premises at issue.  By the time this action was commenced, the borrower no longer held title to the condominium securing payment of this loan, his interest having been foreclosed and title transferred in 2011 to the COA to satisfy outstanding condominium assessments. The borrower, with no interest in the property, did not contest the foreclosure.  Instead, the COA -- then the title holder of the property -- filed an answer and affirmative defenses in which it alleged that the instant action was barred by the five year statute of limitations governing mortgage foreclosures. See § 95.11(2)(c), Fla. Stat. (2013).

 

According to the COA, the mortgagee's cause of action for foreclosure accrued in 2007 when the mortgagee's predecessor in interest accelerated the balance due on the loan by filing a prior suit to collect on a September 1, 2006 default, and because the mortgagee failed to pursue foreclosure within five years of that acceleration and accrual after the first suit was dismissed, the instant action was time barred.

 

The trial court agreed and granted judgment in favor of the COA, holding that the prior foreclosure complaint specifically declared the full amount payable under the note and mortgage and the mortgagee's the right to accelerate was exercised by the filing of the prior lawsuit.   It further held that since more than five years elapsed between the acceleration and the filing of the second foreclosure suit, the action was barred by the statute of limitations. See § 95.11(2)(c), Fla. Stat. The trial court held that the mortgage was null and void, canceled the note and mortgage, and quieted title to the property.

 

The mortgagee appealed and the Third District Court of Appeal reversed under the Florida Supreme Court's decision in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), as well as multiple other opinions rendered by the Fourth District Court of Appeal, the First District Court of Appeal, and the Fifth District Court of Appeal.  See Evergrene Partners, Inc. v. Citibank, N.A., 143 So. 3d 954, 956 (Fla. 4th DCA 2014) (concluding that the statute of limitations would not bar foreclosure of an accelerated loan where an earlier, voluntarily dismissed, foreclosure had been brought to enforce the same loan accelerated for a separate default); see also Nationstar Mortg., LLC v. Brown, 175 So. 3d 833, 834-35 (Fla. 1st DCA 2015) (the statute of limitations did not bar an action to foreclose an accelerated loan brought more than five years after a prior action to foreclose on the same accelerated loan had been brought but then voluntarily dismissed without prejudice); Hicks v. Wells Fargo Bank, N.A., 178 So. 3d 957, 959 (Fla. 5th DCA 2015) (Bank is not precluded from filing a new foreclosure action based on different acts or dates of default not previously alleged, provided that the subsequent foreclosure action on the subsequent defaults is brought within the statute of limitations period found in section 95.11(2)(c), Florida Statutes").

 

The Third District Court of Appeal analyzed the facts of the case in accordance with Singleton, and held that under Florida law a dismissal of a foreclosure action accelerating payment on one default does not bar a subsequent foreclosure action on a later default if the subsequent default occurred within five years of the subsequent action.

 

The Third District emphasized that "[i]t is the fact that the bank alleged the failure to pay the October 1, 2006 installment payment 'and all subsequent payments' that makes the instant case fall within the rule as set out herein."

 

The Court also held that whether a dismissal is with or without prejudice is irrelevant to a lender's right to file subsequent foreclosure actions on subsequent defaults, because under Singleton, subsequent defaults allow for subsequent accelerations regardless of the nature of a prior dismissal.

 

The Third District also analyzed the language of the underlying note and mortgage, and held that the mortgagee in this case was under no obligation, contractually or legally, to "decelerate" the loan following dismissal because the mortgage itself confirms that the installment nature of the loan continues even after acceleration, borrowers have a right to reinstate after acceleration but before final judgment, and the mortgagee's failure to act does not work as a waiver of its rights. 

 

The Court concluded that after the 2010 dismissal without prejudice of the predecessor mortgagee's foreclosure action, the parties returned to the status quo that existed prior to the filing of the dismissed complaint.

 

As a matter of Florida law, the Court held, the mortgagee's 2012 foreclosure action -- which was based on breaches that occurred after the breach that triggered the first complaint -- was not barred by the statute of limitations.

 

The Court further reversed the portion of the trial court's order which declared that the mortgage null, void, and cancelled, and quieted title to the property in favor of the COA.  In so ruling, the Third District held that the Florida Legislature, by its express language, provided that the mortgage lien under section 95.281(1)(a) would terminate five years after a maturity date that can be determined from the face of a recorded document.

 

According to the Court, the face of the recorded mortgage in the instant case reveals a maturity date of March 1, 2036.  Therefore, the Third District held that, pursuant to section 95.281(1)(a), the mortgage lien remains valid until March 1, 2041, five years from the date of maturity as reflected in the recorded mortgage securing the obligation.

 

 

 

 

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

 

 

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FYI: 4th Cir Confirms Entity Is Not FDCPA "Debt Collector" Merely Because It Purchases Defaulted Debt

The U.S. Court of Appeals for the Fourth Circuit recently held that the fact that a debt is in default at the time it is purchased by a third party does not necessarily make that third party a "debt collector" subject to the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"). 

 

Instead, the Court held that the respective definitions of "creditor" and "debt collector" under the FDCPA control whether an entity is a debt collector subject to the FDCPA.

 

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

 

Four Maryland consumers took out separate loans with a lender to purchase their respective automobiles.  The loans were originally made by a lender that was not a defendant in this action.  After the plaintiffs were unable to make payments, the lender foreclosed on the loans, leaving the plaintiffs obligated to pay deficiencies.

 

The company then sold the defaulted loans to the defendant finance company ("Finance Company") as part of an investment bundle of receivables, and the Finance Company thereafter attempted to collect on the loans it had purchased.

 

The plaintiffs filed a class action complaint against the Finance Company, alleging that the Finance Company violated the FDCPA by supposedly engaging in various prohibited collection practices. 

 

The plaintiffs alleged that the Finance Company was a "debt collector" under the FDCPA because:  (1) the debt they were attempting to collect was in default at the time the Finance Company purchased it; (2) the debt was originally "owed or due [to] another"; and (3) that because the Finance Company had been a debt collector prior to purchasing their loans, the Finance Company remained a debt collector after purchasing those same loans from the lender.

 

The Finance Company moved to dismiss on the ground that the plaintiffs "did not allege facts showing that…[it] qualified as a 'debt collector' subject to the FDCPA."  As you may recall, the FDCPA generally covers only the conduct of debt collectors, not creditors, "generally distinguishing between the two based on whether the person acts in an agency relationship with the person to whom the borrower is indebted."

 

The lower court agreed and dismissed the complaint, holding that the Finance Company "was collecting debts on its own behalf as a creditor and that the FDCPA generally does not regulate creditors collecting on debt owed to themselves." 

 

In affirming the dismissal, the Fourth Circuit held that after the Finance Company purchased the plaintiffs' loans, it became a creditor, and that because the Complaint only alleged collection activity after it became a creditor, its collection activity was not subject to the FDCPA. 

 

The Fourth Circuit rejected each of the plaintiffs' arguments, noting that each argument "contains several interpretational and logical flaws such that their interpretation of the FDCPA ultimately stands in tension with its plain language."

 

Rejecting the plaintiffs' first argument that the Finance Company was a "debt collector" because the loans it purchased had been in default, the Court held that the "default status of a debt has no bearing on whether a person [or entity] qualifies as a debt collector under the threshold definition set forth in 15 U.S.C. § 1692a(6)." 

 

The plaintiffs asserted that because 15 U.S.C. § 1692a(4) "excludes from the definition of creditor 'any person to the extent that he receives an assignment of a debt in default solely for the purpose of facilitating collection of such debt for another' such person must of logical necessity be a debt collector." 

 

The Fourth Circuit held that the plaintiffs argument was flawed in that it (1) ignores the requirement that the person must have received the debt "solely for the purposes of facilitating collection"; and (2) because it fails to address whether the Finance Company actually fits the definition of "debt collector" (and instead appears to attempt to prove a "negative pregnant"). 

 

Accordingly, the Court held that the default status of the debt is not determinative as to whether an entity is a debt collector subject to the FDCPA.

 

Importantly, the Fourth Circuit held that the determination of whether an entity is a debt collector "is ordinarily based on whether a person collects debt on behalf of others or for its own account."  And, that the "main exception" to that general rule is "when the 'principal purpose' of the person's [or entity's] business is to collect debt." 

 

The Court further noted, "[w]ith limited exceptions a debt collector [subject to the FDCPA] thus collects debt on behalf of a creditor.  A creditor, on the other hand, is a person to whom the debt is owed, and when a creditor collects its debt for its own account, it is not generally acting as a debt collector." 

 

Moreover, Fourth Circuit noted, the FDCPA in § 1692a(6) "defines a debt collector as (1) a person whose principal purposes is to collect debts; (2) a person who regularly collects debts owed to another; or (3) a person who collects its own debts, using a name other than its own as if it were a debt collector."

 

Applying this definition to the Finance Company, the Court held that the Finance Company did meet any of the above three definitions of "debt collector" under the FDCPA. 

 

For one, its "principal purpose" was not to collect debts because it also engaged in a substantial amount of direct lending and investing.  In addition, as alleged in the complaint, the Finance Company was not collecting on debts "owed to another," but instead collecting own "debts for its own account" because its collection activity only occurred after it purchased the defaulted debt from the lender. 

 

Thus, the Fourth Circuit held that the Finance Company did not fit the first definition of a "debt collector" provided in the FDCPA.

 

The Court also held that the Finance Company did not meet the second definition of "debt collector" because the plaintiffs had not (and could not) show that the Finance Company "regularly" collected debts "owed to another" or that it was "doing so here."  Rather, as the Court explained, the Finance Company was plainly collecting debts "owed to it…not to another…making it a creditor" and thus not subject to the FDCPA.

 

Finally, the Fourth Circuit held that the Finance Company plainly did not meet the third definition of "debt collector" because it was not using a name other than its own in collecting the debts.

 

In rejecting the plaintiffs' argument that the debt was originally due or owed to another, the Court held that there was no support for that argument in the plain language of the FDCPA itself. 

 

Instead, the Court held, to the extent "Congress was regulating debt-collector conduct, defining the terms 'debt collector' to include a person who regularly collects debts owed to another, it had to be referring to debts as they existed at the time of the conduct that is subject to regulation."  Thus, the Court held, as the debts were not "owed to another" but instead owned by the Finance Company at the time it engaged in the allegedly prohibited practices, those alleged practices were not subject to FDCPA regulation.

 

Likewise, in rejecting the plaintiffs' remaining arguments that the Finance Company had previously been a debt collector (or acted as a debt collector for other loans), the Fourth Circuit held that the plaintiffs grossly misinterpreted the FDCPA:

 

Under the plaintiffs' interpretation, a company such as [the Finance Company]—which as a consumer finance company, lends money, services loans, collects debt for itself, collects debt for other, and otherwise engages in borrowing and investing its capital—would be subject to the FDCPA for all of its collection activities simply because one of its several activities involves the collection debts for others.

 

The Court held that "Congress did not intend this."  Rather, the Fourth Circuit held that Congress "aimed [the FDCPA] at abusive conduct by persons who were activing as debt collectors" as explained in § 1692(e) of the FDCPA.  Thus, the Court held that the Finance Company is "therefore subject to the FDCPA only when acting as a 'debt collector' in § 1692a(6)" and not when it is engaging in activity to collect on its own debts "as a creditor." 

 

Accordingly, the Court affirmed dismissal of the complaint.

 

 

 

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.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

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and

 

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and

 

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