11th Cir. Holds Post-Discharge Monthly Mortgage Statements Not Prohibited

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a mortgage loan borrower’s federal Fair Debt Collection Practices Act and related state law claims because the defendant mortgagee was not a “debt collector” as defined by the FDCPA.

In so ruling, the Court also rejected the borrower’s allegations that the monthly statements the mortgagee sent to the borrower after her bankruptcy discharge were impermissible implied assertions of a right to collect against her personally.

A copy of the opinion in Helman v. Bank of America is available at: Link to Opinion.

The borrower obtained a mortgage loan and home equity line of credit from a lender, both of which were secured by her primary residence. Five years later, the borrower filed for Chapter 7 bankruptcy and received a discharge.

After the borrower’s discharge, the lender continued to send the borrower monthly statements concerning the status of the loans.

The borrower filed a putative class action lawsuit alleging violations of the FDCPA, the Florida Consumer Collection Practices Act (FCCPA), the Florida Deceptive and Unfair Trade Practices Act, and for common law conversion, fraudulent inducement, and negligent misrepresentation.

The lender filed a motion to dismiss arguing that it did not meet the FDCPA’s definition of “debt collector” and that the borrower had failed to state claims under state law. The lender filed a second motion to refer the case to the bankruptcy court because the borrower’s claims rested on a purported underlying violation of the bankruptcy injunction emanating from the bankruptcy discharge and that the Bankruptcy Code pre-empted the state law claims.

The trial court granted the motion to dismiss the FDCPA claim and found the state law claims pre-empted. The trial court also granted the motion to refer the matter of the purported bankruptcy injunction violation to the bankruptcy court. The borrower appealed, but this first appeal was dismissed as not appealable.

The parties appeared before the bankruptcy court, but because neither party was actually arguing that a violation of the bankruptcy injunction had occurred, the case was returned to the trial court where the state law claims were dismissed for failure to state a claim. The borrower then appealed.

On appeal, the Eleventh Circuit found that the lender did not qualify as a “debt collector” as defined by the FDCPA because it had originated the loans and thus was a “creditor” under the FDCPA and that the FDCPA did not apply to it.

However, as you may recall, and unlike the FDCPA, the FCCPA applies to anyone who attempts to collect a consumer debt such that the lender ostensibly fell under the FCCPA’s prohibition against threatening to enforce a debt when that person knows it is not legitimate or to assert the existence of a legal right when the person knows that right does not exist.

Even an implied threat can be a violation of the FCCPA, although it is considered from the perspective of the “least sophisticated consumer” who “possess[es] a rudimentary amount of information about the word and willingness to read a collection notice with some care.”

The borrower based her state law FCCPA claim on the assertion that the lender’s monthly statements sent to her after her bankruptcy discharge were implied assertions of a right to collect against her personally and that the lender knew it had no such right because of the discharge.  The lender countered that the monthly statements were sent under its right under 11 U.S.C. § 524(j)(3) to seek “periodic payments associated with a valid security interest in lieu of pursuit of in rem relief to enforce the lien” and that a least sophisticated consumer would not be misled by the monthly statements.

The Eleventh Circuit held that even the least sophisticated consumer would not believe that the lender was seeking to collect against the borrower personally based on receipt of the monthly statements because the borrower’s bankruptcy discharge plainly stated that collection of her debt was prohibited but that a creditor may have the right to enforce a valid lien such as a mortgage if it had not been eliminated or avoided. The Court noted that this discharge statement is consistent with a mortgage creditor’s right to seek payment under 11 U.S.C. § 524(j).

The Eleventh Circuit also pointed out that the lender’s monthly statements plainly informed the borrower, and would also have informed the least sophisticated consumer, that she was not personally liable for the debt but that the lender could foreclose if the monthly payments were not made.

The Court pointed out that under some circumstances an insufficient bankruptcy disclaimer in monthly statements could allow the monthly statements to be considered an attempt to collect a debt, but here it was not.

The Eleventh Circuit refused to engage in a strained reading of the bankruptcy disclaimer language and pointed out that the borrower’s basic knowledge that she had been through the bankruptcy process, had received a discharge, had no personal liability on the mortgage, and that the lender could still foreclose on the property, provided enough information for her to understand the meaning of the bankruptcy disclaimer.

The Appellate Court thus rejected as “bizarre or idiosyncratic” the borrower’s interpretation of the bankruptcy disclaimer in the lender’s monthly statement as ambiguous and unable to “override a series of clear and unambiguous communications to the contrary.”

Accordingly, the Eleventh Circuit affirmed the dismissal of the FCCPA and other state law claims, as well as the dismissal of the FDCPA claim.

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Amy Jonker is a commercial litigator whose practice focuses on defending consumer financial services companies in class actions, individual matters, and regulatory investigations, representing employers in investigations and litigation, and successfully resolving commercial disputes. She has extensive experience delivering positive outcomes in complex commercial litigation in state and federal courts across the country, including for many financial institutions and law firms for claims filed under the Fair Debt Collection Practices Act (FDCPA), the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), the Telephone Consumer Protection Act (TPCA), UDAAP and state consumer protection laws, under the Family and Medical Leave Act (FMLA), Title VII, the Americans with Disabilities Act (ADA), whistleblower claims, and in complex insurance disputes. Her experience covers all phases of litigation at both federal and state levels, including obtaining dismissals of complaints, obtaining summary judgment on claims and defenses, handling all phases of discovery in both individual and class actions, negotiating individual and class action settlements, preparing for and participating in trials and arbitrations, conducting oral arguments, and federal and state court appellate work.