This week, the United States Supreme Court issued a key decision under the Fair Debt Collection Practices Act in a case litigated by Balch & Bingham lawyers, Jason Tompkins and Chase Espy. In Midland Funding, LLC v. Johnson, the Supreme Court resolved a circuit split over the issue of whether debt collectors who file bankruptcy proofs of claim for stale debts are subject to suit under the Fair Debt Collection Practices Act. Siding with Midland, one of the nation’s largest buyers of unpaid debt, the Supreme Court held that “filing a proof of claim that on its face indicates that the limitations period has run” is not actionable under the FDCPA, thereby avoiding a potential conflict between the FDCPA and the Bankruptcy Code. Although ostensibly limited to the bankruptcy context, the Johnson decision could potentially ripple into other FDCPA cases. In the meantime, though, Johnson will undoubtedly turn off the faucet for would-be FDCPA plaintiffs who had hoped to capitalize on what the Eleventh Circuit complained is a “deluge” of out-of-statute proofs of claim.
The Eleventh Circuit recently clarified that sending periodic mortgage statements following a debtor’s bankruptcy discharge is not misleading to the “least sophisticated consumer.” In Helman v. Bank of America, 15-13672, 2017 WL 1350728 (11th Cir. April 12, 2017) Gayle Helman filed suit, alleging that Bank of America violated the Fair Debt Collections Practices Act (FDCPA), Florida Consumer Collection Practices Act (FCCPA), and other state laws when it sent Ms. Helman periodic mortgage statements after her mortgage loan was discharged in bankruptcy. She claimed that the statements unlawfully attempted to collect a discharged debt and that such communications would be misleading to the least sophisticated consumer because it suggested she remained liable for the debt.
In a victory for defendants, the Eleventh Circuit recently agreed that a mere procedural violation—the kind of injury that has become the favorite of the plaintiffs’ bar—is insufficient to confer Article III standing. More specifically, the Eleventh Circuit concluded that a certified return receipt will satisfy a lender’s obligation under Regulation X to provide written acknowledgment of a request for information within five days. Though this decision is unpublished, it is persuasive authority that may guide the district courts within the Eleventh Circuit.
In Meeks v. Ocwen Loan Servicing, LLC, No. 16-15536, Charles Meeks sent a Request for Information to his mortgage servicer via certified mail. The servicer’s agent signed the return receipt the same day the request was received. The receipt was then returned to the Meeks’ counsel. Several months later, Meeks sued the servicer and attached the certified receipt to his complaint.
Meeks asserted two claims against the servicer: (1) the servicer violated Regulation X by not sending him written acknowledgment of the Request for Information within 5 days and (2) that the servicer had shown a reckless disregard for the requirements of Regulation X. After the case was removed, the district court dismissed the first count for failure to state a claim and the second count for lack of standing. On appeal, the Eleventh Circuit affirmed.
The Court pointed out that no other circuit court has considered whether a certified receipt satisfies the written response obligation under Regulation X. Rather than engage in a lengthy legal analysis, the Court focused on the undisputed facts. Because there was no serious dispute that Meeks had received the certified receipt, Meeks had failed to state a claim under Regulation X. Put another way, a failure to send a notice of acknowledgment is unnecessary when the undisputed evidence shows that the borrower knew the request had been received.
More important, the Court concluded that Meeks lacked standing to bring a pattern or practice claim. Pointing to the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548-49 (2016), the Court noted that an injury must be both concrete and particularized in order to confer Article III standing. Meeks had not suffered an injury because it was undisputed that he had received the return receipt. Even though Meeks argued that this receipt was deficient under Regulation X, the Eleventh Circuit held that this deficiency was nothing more than “a bare procedural violation” that was insufficient to create a “real, concrete injury.”
Meeks is important for two reasons. First, it holds that a procedural deficiency alone—here, the failure to send a written acknowledgment within five days—is insufficient to confer standing when the undisputed evidence shows that the deficiency caused no injury to the plaintiff. On this point, Meeks is in tension with another unpublished Eleventh Circuit decision, Church v. Accretive Health, Inc., 654 F. App’x 990 (11th Cir. 2016), which held that the FDCPA creates a statutory right to receive certain information and that a failure to include this information in the debtor’s letter to the plaintiff was a sufficient injury to confer standing. Because neither opinion is published, neither will be binding on a subsequent Eleventh Circuit panel. Moreover, it may be possible to reconcile the holdings in Meeks and Church. In Meeks, it was undisputed that the plaintiff had received the benefit established by the procedural right while in Church it was not clear that the plaintiff had actually received the information that the statute required. It is also worth pointing out that many post-Spokeo courts have declined to extend Spokeo to its logical conclusions. At the very least, this apparent contradiction signals that the law on this issue is evolving. The Eleventh Circuit is likely to address this issue in a published opinion in the future.
Second and for purposes of Regulation X specifically, Meeks holds that a certified return receipt can satisfy a lender’s obligations under Regulation X when there is no dispute that the borrower received the return receipt. This holding may be somewhat limited however because plaintiffs’ counsel may not attach the receipts to their complaints or will deny receiving them. Meeks also leaves open the question of what happens if the receipt is received by the borrower more than five days after the lender signs it. Still, lenders should look for ways to bring their case within Meeks as doing so will create a strong argument for dismissal in district courts within the Eleventh Circuit.
Late December, the Fourth Circuit Court of Appeals (Fourth Circuit), in Lovegrove v. Ocwen Home Loans Srvs., upheld summary judgment in favor of a mortgage servicer against allegations under the Fair Debt Collection Practices Act (FDCPA), under which courts generally apply a “least sophisticated consumer” standard. The plaintiff in Lovegrove alleged that monthly mortgage statements he received from the servicer violated the FDCPA because they attempted to collect a debt which had been discharged in a recent bankruptcy. The notices, however, contained the familiar and—here, exposure limiting—disclosures that “if the debt is in active bankruptcy or has been discharged through bankruptcy, this communication is not intended as and does not constitute an attempt to collect a debt.” In following its own recent case law, the Fourth Circuit applied a “commonsense inquiry” into whether these notices, in light of the quoted disclaimer, attempted to collect debt, ultimately deciding that they did not. Of further note is the passing comment by the Fourth Circuit that “there is an argument that sophisticated and high-dollar loan arrangements should not be analyzed under the least sophisticated consumer standard. Perhaps, sophisticated consumers should not get the benefit of the lenient standard when they are part of a complex relationship or situation that may be confusing to less sophisticated individuals.”
The clear take away is that disclaimers that can be easily disregarded as boilerplate still have significant meaning, and, as in this case, may form the basis for escaping liability altogether. Further, while debt collectors still have to strictly comply with all requirements under the FDCPA, the wildly lenient “least sophisticated consumer standard” may give way under certain circumstances.
The Alabama Court of Civil Appeals recently held in Pittman v. Regions Bank that questions about the propriety of a foreclosure may be raised more than one year after the foreclosure as an affirmative defense to an ejectment action, even if that party did not challenge the original foreclosure.
In 2008, Windham and Rhonda Pittman—along with their company Land Ventures for 2, LLC—obtained a $650,000 loan from Access Mortgage Corporation to purchase several parcels of property in Daleville, Alabama, including a parcel where the Pittmans’ house was located. The Pittmans signed a loan modification agreement with Access in 2009, and the loan was transferred to Regions Bank in 2010. The Pittmans ultimately fell behind on their monthly payments and Regions eventually foreclosed on the property.
After ignoring several requests from the Pittmans asking that the properties be sold off individually rather than together, Regions sold the property to itself en masse for $367,500 in 2013. The Pittmans refused to vacate the property on which their house was located, however, and Regions filed an ejectment action in 2014. The Pittmans contested the action, contending that they had not received proper notice of their default on the loan, of Regions’ intent to accelerate the loan, or of Regions’ intent to foreclose. They also argued that Regions had improperly denied their requests to sell the property off by lot rather than en masse. The trial court granted summary judgment to Regions.
On appeal, however, the Alabama Court of Civil Appeals reversed, holding that in order to prevail on its ejectment claim, Regions must show that it held proper title to the property and that the Pittmans unlawfully remained on the property. The Court held that while there was no dispute that the Pittmans remained on at least one of the properties, the Pittmans were entitled to raise the issue of improper foreclosure as an affirmative defense to Regions’ ejectment. As such, the Court disagreed with Regions’ assertion that all contentions of an improper foreclosure must be raised within one year of the foreclosure because the ejectment action required Regions to prove that it held legal title.
Further, the Court held that Regions’ refusal to sell non-contiguous parcels of property could indicate that Regions violated its duty of fairness and good faith, thereby voiding the foreclosure sale. According to the Court, the Pittmans had presented substantial evidence that they had asked Regions to sell the properties separately and that they had been prejudiced when Regions refused to do so. Specifically, the Court held that the Pittmans had presented evidence that they could have redeemed the lot containing their home without redeeming the other properties if Regions had sold the lots separately, and that the properties might have sold at a higher price if Regions had sold them separately. Therefore, the Court held that the trial court should not have granted Regions’ motion for summary judgment.
This ruling should serve as a reminder to loan servicers and investors that all foreclosures must be handled in good faith, seeking not to prejudice a homeowner any more than necessary. In Pittman, Regions’ refusal to consider selling the Pittmans’ property in individual lots may have kept the Pittmans from receiving the full value of their property, and made it more difficult for the Pittmans to redeem the property—issues that the Pittmans raised prior to foreclosure. Further, counsel for loan servicers should bear in mind that the one-year bar to challenging a foreclosure on its face does not necessarily extend to a party’s ejectment defenses. Therefore, counsel should take care not to oversell the importance of the one-year bar when evaluating a client’s claims for ejectment or a similar action.
The text of the opinion is available here.
In a recent decision, the Eleventh Circuit (Lage v. Ocwen Loan Servicing, LLC, No. 15-15558 (11th Cir. Oct. 7, 2016)) held that a loan servicer is not required to evaluate a completed loan modification application if that application is submitted less than 37 days before a foreclosure sale is originally scheduled to occur. The Court held that this applies even when the foreclosure sale on the property is rescheduled to a later date, making the loan modification application fall outside the 37-day window.
Continue Reading Eleventh Circuit Holds That Reg. X Does Not Require Mortgage Servicers to Evaluate Untimely Loan Modification Plans Even If the Foreclosure Is Rescheduled So That the Sale Actually Occurs Beyond Reg. X’s 37-day Window
In an unpublished opinion, the Eleventh Circuit applied the Supreme Court’s recent opinion in Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016) and held that a debtor who allegedly did not receive certain disclosures required by the Fair Debt Collections Practices Act (FDCPA) suffered an injury-in-fact to her statutorily created right to receive such information, and therefore had standing to pursue an FDCPA claim against the entity attempting to collect the debt.
Few issues involving the Fair Debt Collection Practices Act (FDCPA) are more hotly contested than whether filing a proof of claim on a time-barred debt violates the FDCPA. In bankruptcy, creditors have a right to file proofs of claim outlining the debt owed to them by the bankrupt debtor. In some instances, the statute of limitations for filing a lawsuit on that debt has run, and up until July 10, 2014, when the Eleventh Circuit Court of Appeals issued its decision in Crawford v. LVNV Funding, LLC, it was common practice to file a proof of claim on such a time-barred debt. Crawford—for the first time—likened the filing of a proof of claim to the filing of a lawsuit, finding that if one is wrongful, so is the other. After Crawford, debt collectors have faced a tidal wave of cases across the country, raising numerous defenses, one of which is res judicata. The argument goes like this: if a debt collector files a proof of claim to which neither the debtor nor the trustee objects and the court subsequently confirms the debtor’s plan, then a final judgment exists stating the debt is valid. Thus the debtor is barred by res judicata from further challenging the debt.
Despite a chorus of cases adopting this reasoning, the United States District Court for the Southern District of Georgia recently dealt a blow to the res judicata argument, finding that the grounds upon which the FDCPA claim was raised and the grounds upon which the proof of claim was confirmed were not sufficiently similar such that one could foreclose the other. For two years the so-called Crawford cases have raged; circuit splits exist; and this recent decision from the Southern District of Georgia shows that further disagreement is likely. Creditors and debt collectors alike should monitor the development of these cases to ensure they know how their claims will be treated in the bankruptcy courts.
With the Consumer Financial Protection Bureau (“CFPB”) now employing mystery shoppers, financial institutions must ensure that their branches are actually putting non-decimation policies into practice. As we reported here on July 1, BancorpSouth, a Mississippi-based bank, recently entered into a $10.6M settlement with the CFPB regarding alleged redlining in the Memphis market. That investigation was the CFPB’s first use of testing, also called “mystery shopping,” as an investigative tool. This practice, which has long been in use by the Department of Justice and the Department of Housing and Urban Development, involves sending both white and African American individuals into branch offices to determine whether white customers are treated more favorably than African American customers.
More information about the CFPB’s use of mystery shopper’s as well as the redlining settlement can be located here.
In a case that demonstrates the scope of the Consumer Financial Protection Bureau’s (“CFPB’s”) reach, the CFPB and Department of Justice (“DOJ”) have entered into a settlement with BancorpSouth totaling almost $10,600,000 over alleged redlining. Redlining is the practice of denying services or raising prices to residents of certain geographic areas based upon their racial or ethnic makeup. The term was coined from the practice by lenders of marking in red areas on maps of cities that were not desirable for mortgage loans.
According to the CFPB and DOJ, when BancorpSouth expanded into the Memphis market, it did not build any branches in neighborhoods with large minority populations. Further, nearly all of its loans allegedly originated outside minority neighborhoods. The fine was announced as part of a settlement between BancorpSouth and the government under which, if approved by the court, Bancorp South will provide $4,000,000 in direct loan subsidies in minority neighborhoods, spend at least $800,000 on community programs and minority outreach, pay $2,780,000 to African American customers who were overcharged or denied credit, and pay a $3,000,000 penalty. Although it settled with the government, BancorpSouth did not admit guilt.