FYI: ED NY Holds "Door Knocker" Notice Did Not Violate FDCPA, But "Hello Letter" May Have

The U.S. District Court for the Eastern District of New York recently granted in part and denied in part a mortgage servicer's motion to dismiss a borrower's claim that the servicing transfer notice supposedly violated the federal Fair Debt Collection Practices Act (FDCPA) because it allegedly did not disclose that the debt was increasing due to interest, and that a "door knocker" notice posted on the borrower's door failed to state that it was from a debt collector.

 

The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), a debt collector must disclose that a debt is increasing due to interest and fees, and accordingly denied the servicer's motion to dismiss on that issue.

 

However, the Court granted the servicer's motion to dismiss as to the claim that the "door knocker" notice failed to state that it was a communication from a debt collector because the least sophisticated consumer would understand that the letter was from a debt collector.

 

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

 

The mortgage loan servicer began servicing the mortgage when it was in default.  The servicer sent a servicing transfer notice to the borrower and advised him that "going forward, all mortgage payments should be sent to [the servicer], but that '[n]othing else about [the] mortgage loan will change."  

 

The letter also stated "[t]his notice is to remind you that you owe a debt.  As of the date of this Notice, the amount of debt you owe is $412,078.34."  Id. The notice further stated that the servicer was "deemed to be a debt collector attempting to collect a debt and any information obtained will be used for that purpose." Id. at *3. 

 

Later, the servicer posted a notice on the door of the debtor's home stating: "Date 02/23/17 Dear Borrower: Rego Baptiste URGENT NOTICE: Please contact your mortgage servicer immediately at: (800) 561-4567. Thank you."

 

The borrower filed suit against the servicer asserting violations of 15 U.S.C. §1692e(10) for failing disclose in the letter that the balance on his debt was increasing due to interest and of §1692e(11) for failing to state in the notice that it was from a debt collector.

 

The servicer moved to dismiss.

 

The Court rejected the servicer's argument that the notice was not a collection attempt and thus not subject to § 1692e. Instead, the Court found that under Hart v. FCI Lender Servs., Inc., 797 F.3d 219 (2nd Cir. 2015), the notice was a collection attempt because it referenced the debt and directed that payments be sent to the servicer, it referenced the FDCPA and included the required § 1692g notice, and included a statement that the it is an attempt to collect a debt.  

 

The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2nd Cir. 2016), when a debt collector notified a debtor of an account balance, it must disclose that the balance may increase due to interest and fees." Avila, 817 F.3d at 76. 

 

The Court also rejected the servicer's argument that Avila should not apply because even a least sophisticated debtor knows that interest continuously accrues on an unpaid mortgage balance and that fees will be incurred if the mortgage is not timely paid. The Court pointed out that because the mortgage was in default at the time the servicer began servicing it, it was subject to the FDCPA and that there was no authority holding that servicers collecting on defaulted mortgages are treated differently than any other debt collectors under the FDCPA.

 

The Court found that the notice did not meet Avila's safe harbor requirements and that such a violation would be material because it "could impede a consumer's ability to respond to . . . collection."  Id. at *12. Accordingly, the Court denied the motion to dismiss as to the servicing transfer notice.

 

As for the "door knocker" notice, the Court found that a least sophisticated consumer would "surmise" that it was from the servicer "whom he would know as a debt collector."  Id. at *12. The Court found this sufficient because the FDCPA "requires no magic words or specific phrases to be used" but only requires that the least sophisticated consumer understand. The Court concluded that "even the least sophisticated consumer would know that a mortgage servicer is a debt collector."

 

Accordingly, the Court granted the motion to dismiss as to the "door knocker" notice, but denied the motion as to the servicing transfer notice.

 

 

 

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

 

 

 

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

 

 

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

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: 6th Cir Holds Debtors Could Compel Abandonment of Home If Little Equity Available

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a bankruptcy court's order granting the debtors' motion to compel the trustee to abandon their home as property of the estate because it had little equity and thus little value for unsecured creditors.

 

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

 

Husband and wife debtors filed a petition under Chapter 7 of the Bankruptcy Code, listing their home on their schedules as having an appraised value of $108,000 and a mortgage of $91,581.

 

The bankruptcy trustee moved to evict debtors, arguing that the value of the property was closer to $200,000 and that it would be easier to sell the property unoccupied.

 

The debtors responded by filing a motion to compel the trustee to abandon the property because the value was inconsequential and provided little or nothing of value to unsecured creditors. In the alternative, they asked that their case be converted to a Chapter 13 reorganization in order that they could try to keep their home.

 

The bankruptcy trustee tendered to the debtors a check for $7,500, which was the value of the debtors' statutory homestead exemption under Tennessee law, which the debtors rejected.

 

The bankruptcy court held an evidentiary hearing in July of 2015, at which the parties presented competing valuations of the property. The debtors called two appraisers. One testified that the property would be worth $171,000 after making needed repairs of $63,000, leaving a net value of $108,000. The other appraiser testified that the home's property would be worth $185,000 after making $60,000 in needed repairs, leaving a net value of $125,000.

 

The trustee's witness, a realtor, testified that the property "was worth $204,000, which he based on his tour of the property." The trustee also called a home inspector, who testified that the amount needed for repairs was exaggerated. Finally, the trustee "himself testified … that, after repairs, the home was worth between $190,000 and $200,000."

 

In August of 2015, the bankruptcy court granted the debtors' motion to abandon, holding that the home's value was inconsequential to the estate. The trustee moved to alter or amend the judgment, which was denied.

 

The trustee appealed to the trial court, which affirmed the bankruptcy court. The trustee then appealed to the Sixth Circuit.

 

On appeal, the Sixth Circuit first addressed the trustee's argument that the debtors lacked standing to compel the trustee to abandon their home as property of the estate because they were not "parties in interest."

 

The Court rejected this argument, reasoning that a trustee's statutory power to liquidate the estate and use the proceeds to pay unsecured creditors was limited by the requirement in section 554(b) of the Code that the trustee "must generally abandon property ["of inconsequential value and benefit to the estate"] that does not possess substantial equity."

 

The Sixth Circuit explained that since a "party in interest" means "anyone who has a practical stake in the outcome of a case[,] and the debtors would get to keep their home if the trustee was required to abandon it, they were "parties in interest" and "thus had standing to pursue a motion to compel abandonment."

 

The Court rejected the trustee's argument that because he tendered their statutory homestead exemption, the debtors "lacked any 'legal or possessory interest' in their residence. It reasoned that while the statutory homestead exemption was one remedy that debtors had available to them "to provide them with a 'fresh start' after the loss of their property[,]" it was not the exclusive remedy. "An alternative remedy is for the debtor to seek abandonment by the trustee under 11 U.S.C. § 554(b) if the property is 'of inconsequential and benefit to the estate.' If [the trustee] could extinguish the abandonment remedy by simply tendering the homestead exemption, then he could effectively nullify 11 U.S.C. § 554(b)."

 

The Sixth Circuit also rejected the trustee's second argument that the debtors "lacked Article III standing to proceed on their motion to compel abandonment" because they met the 3-pronged test. Specifically, they would suffer an injury-in-fact if they were evicted, caused by the trustee, which would be redressed by a favorable ruling on the motion to compel abandonment.

 

The Sixth Circuit next rejected the trustee's argument that there was insufficient evidence for the bankruptcy court to find that the debtors' home was only worth $108,000, reasoning that "[t]he record here is replete with evidence on which the bankruptcy court could reasonably have concluded that the [debtors'] estimate of value was the more accurate one, especially because the [debtors] presented two appraisers who had thoroughly inspected the house, whereas [the trustee] presented no appraisers, instead relying on a realtor, a home inspector, and himself."

 

Having concluded that the "bankruptcy court did not err in order the trustee to abandon the property[,]" the Court rejected the trustee's "Hail Mary" attempt to avoid this result, … that, because the [debtors] offered to convert their Chapter 7 case to a case under Chapter 13 and pay the estate roughly $50,000 (albeit by utilizing funds made available by a relative), the bankruptcy court abused its discretion in concluding that the residence was of inconsequential benefit to the estate's unsecured creditors."

 

First, the Sixth Circuit held, the argument failed because it was waived, not having been raised in the trustee's brief. "Second, there is a total disconnect between the debtors' alternative offer and the issue of abandonment." The Court found unpersuasive and inapposite the trustee's cite to "a single unpublished out-of-circuit decision that reversed an abandonment order" because in that case the abandonment order was revered because "abandonment is not available where the value of the property had not been established[,]" whereas in the case at bar, the bankruptcy court "ably discharged it responsibility in determining the value of the residence." 

 

Accordingly, the judgment of the district court was affirmed.

 

 

 

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

 

 

 

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

 

 

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

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: 11th Cir Holds TCPA Allows Partial Revocation of Consent

The U.S. Court of Appeals for the Eleventh Circuit recently held the Telephone Consumer Protection Act ("TCPA") permits a consumer to partially revoke her consent to be called by means of an automatic telephone dialing system ("ATDS"), and thereby only receive calls at certain times of the day or on certain days.

 

Accordingly, the Eleventh Circuit reversed the trial court order granting summary judgment in favor of the defendant, and ruled that whether the consumer had partially revoked consent was a question of fact for a jury. 

 

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

 

The plaintiff consumer ("Consumer") applied for and was issued a credit card by the defendant bank ("Bank").  In her application, the Consumer provided her cellular phone number to the Bank, and initially consented to allow the Bank to call that number.

 

After the Consumer fell behind on her credit card payments, the Bank began placing calls to her cellular phone using an ATDS falling within the purview of the TCPA. 

 

On a call on October 13, 2014, the Consumer stated: "And if you guys cannot call me, like, in the morning and during the work day, because I'm working, and I can't really be talking about these things while I'm at work.  My phone's been ringing off the hook with you guys calling me." 

 

The Bank employee replied that "[i]t's the phone system.  When it's reporting two payments past due, it's a computer that dials.  We can't stop calls like that."

 

Five months later, on March 19, 2015, a Bank employee again called the Consumer, who twice told the employee to stop calling.  The Bank did not place any more automated calls to the Consumer after that conversation. 

 

The Consumer subsequently sued the Bank for violating the TCPA.  She alleged that during the October 13 conversation she revoked her consent to have the Bank make calls to her cellular telephone using an ATDS.  The Consumer further alleged that the Bank made over 200 automated calls to her cellular phone between October of 2014 and March of 2015. 

 

The trial court granted summary judgment in favor of the Bank, finding the Bank "did not know and should not have had reason to know that [the Consumer] wanted no further calls."  The trial court further found that the Consumer did not "define or specify the parameters of the times she did not want to be calls," and as a result "no reasonable jury could find that [she] revoked consent to be called."  

 

The Consumer appealed.

 

The Bank made two arguments on appeal defending the trial court's ruling.  First, the Bank argued that the TCPA does not permit partial revocations of consent.  Second, the Bank argued that even if partial consent were possible, the Consumer's statements on October 13 did not constitute revocation of her consent to be called in the morning or during work hours.

 

With respect to whether the TCPA permits partial revocations of consent, the Eleventh Circuit first noted that "[a]lthough the TCPA is silent on the issue of revocation, our decision in Osorio [v. State Farm Bank, F.S.B., 746 F.3d 1242 (11th Cir. 2014)] holds that a consumer may orally revoke her consent to receive automated calls."  The Court explained that it reasoned that "based upon statutory silence regarding the means for providing or revoking consent, we could infer that Congress intended for the TCPA to incorporate the common-law understanding of consent, which generally allows for oral revocation," and "allowing consent to be revoked orally is consistent with the government interest articulated in the legislative history" of the TCPA.

 

The Eleventh Circuit then stated that "[b]ecause the TCPA is silent as to the partial revocation of consent, our analysis is again informed by common-law principles." 

 

At common law "consent is a willingness for certain conduct to occur," and "[s]uch willingness can be limited, i.e., restricted."  Thus, "if an actor exceeds the consent provided, the permission granted does not protect him from liability for conduct beyond that which is allowed." 

 

Moreover, the Eleventh Circuit noted that the notion of limited consent finds support in other areas of federal law, such as the Fourth Amendment, which allows a person to provide limited consent to a search.  

The Court therefore held "that the TCPA allows a consumer to provide limited, i.e., restricted, consent for the receipt of automated calls.  It follows that unlimited consent, once given, can also be partially revoked as to future automated calls under the TCPA." 

 

The Eleventh Circuit next addressed the Bank's argument that a recent declaratory ruling by the FCC precludes partial revocation of consent under the TCPA.  See In the Matter of Rules & Regulations Implementing the TCPA, 30 F.C.C. Rcd. 7961 (2015). 

 

The Court first quoted language from the ruling, which concluded that "[n]othing in the language of the TCPA or its legislative history supports the notion that Congress intended to override a consumer's common law right to revoke consent."  Thus, the Eleventh Circuit determined that the ruling "does not cast doubt on our reliance on common-law principles." 

 

The Court further noted that the language the Bank relied on that "'consumers may revoke consent in any manner that clearly expresses a desire not to receive further messages,' was used by the FCC in rejecting a creditor's claim that express consent, once given, cannot be revoked at all under the TCPA.  This language cannot be reads out of context to forbid the partial revocation of consent."

 

Having concluded a consumer may partially revoke her consent, the Eleventh Circuit next turned to whether the Consumer did partially revoke her consent on the October 13 call.  The Court determined that "[t]his issue is close, but we conclude on this record the matter of partial revocation is for the jury."

 

The Eleventh Circuit therefore held that summary judgment was inappropriate, as "a reasonable jury could find that [the Consumer] partially revoked her consent to be called in 'the morning' and 'during the workday' on the October 13 phone call with a [Bank] employee."      

 

 

 

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

 

 

 

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

 

 

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

 

Webinars

 

and

 

California Finance Law Developments 

 

FYI: Ill App Ct (3rd Dist) Holds Third Refiled Foreclosure Not Barred

The Appellate Court of Illinois, Third District, recently rejected a mortgagor's argument that the Illinois single refiling rule barred a third attempt at foreclosure where the intervening foreclosure complaint was premised upon an alleged default under a loan modification agreement.

 

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

 

The convoluted procedural and factual history for the mortgage loan at issue in this matter can be boiled down to the following:

 

The defendant mortgagor (who was not a signatory to the promissory note) and his ex-spouse defaulted under the terms of the subject loan for failing to make payments in 2008. 

 

Following their default the mortgagee filed its first foreclosure action premised upon the 2008 default, but later voluntarily dismissed the first foreclosure based upon the belief that a loan modification agreement had been reached.  Subsequently, the mortgagee filed its second foreclosure action which alleged a 2009 default of the subject loan as modified by the loan modification agreement. 

 

The mortgagee later voluntarily dismissed the second foreclosure action - although not clear in the opinion - presumptively because the loan modification agreement was unenforceable. 

 

Finally, the mortgagee filed its third foreclosure action alleging the same 2008 default as the first foreclosure action and no loan modification. 

 

In the third foreclosure action, the mortgagor filed an answer and affirmative defenses in which he argued that the action was barred by the doctrines of res judicata and/or collateral estoppel due to the prior two dismissals.  Later, the mortgagor modified his defense to that the Illinois single refiling rule (735 ILCS 5/13-217) precluded the third foreclosure action. 

 

Following briefing and oral arguments, the trial court granted summary judgment and judgment of foreclosure in the mortgagee's favor.  The mortgagor filed his appeal, arguing in pertinent part that the single refiling rule bars the third foreclosure action.

 

As you may recall, Section 5/13-217 of the Illinois Code of Civil Procedure, also known as the single refiling rule, is a saving provision that grants a plaintiff the absolute right to refile his complaint within one year after a voluntary dismissal - and other non-dispositive events, e.g. dismissal for want of prosecution - or within the remaining period of limitations, whichever is greater. 735 ICLS 5/13-217; see also, Timberlake v. Illini Hospital, 175 Ill. 2d 159, 163 (Ill. 1997). 

 

The purpose of Section 13-217 is to facilitate the hearing of cases on their merits, but has been held by the Illinois Supreme Court to be limited to only one refiling of a claim regardless of whether or not the statute of limitations has expired.  See Richter v. Prairie Farms Dairy, Inc., 2016 IL 119518, P 44.

 

According to the Appellate Court, the determination as to whether a case is a refiling of a prior complaint is determined based upon the principles of res judicata.  Illinois courts apply the transaction test for res judicata purposes in which separate claims will be considered to be the same cause of action if both claims arise from a single group of operative facts, regardless of whether they assert different theories of relief.  River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 310-11 (Ill. 1998).

 

Applying the transactional test to the first, second and third foreclosure complaints, the Appellate Court determined that the third foreclosure was a refiling of the first foreclosure, and that the second foreclosure was not a re-filing of the first foreclosure. 

 

In distinguishing the first and second foreclosures, the Appellate Court specifically noted that the first foreclosure was based upon a violation of the original mortgage and a 2008 default, but the second foreclosure was based upon a breach of the original mortgage and loan modification agreement with a 2009 default. 

 

The Appellate Court also noted that the first and second foreclosures alleged different principal loan balances.  The Court concluded that it was clear the second foreclosure did not involve the same cause of action as the first foreclosure for purposes of the refiling rule, and therefore, the third foreclosure complaint was the first and only refiling of the same cause of action as the first foreclosure complaint. 

 

Accordingly, the Appellate Court affirmed the lower court's summary judgment and judgment of foreclosure in favor of the lender. 

 

 

 

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

 

 

 

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

 

 

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

 

Webinars

 

and

 

California Finance Law Developments