The Appellate Division of the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida recently reversed summary judgment in favor of a mortgage loan servicer in a case filed by a borrower under the Florida Consumer Collections Practices Act (FCCPA), holding that:
(a) the account statement at issue improperly attempted to collect a debt that was no longer owed, and was not preempted by the federal Truth in Lending Act (TILA); and
(b) sending the statement to the borrower’s attorney did not avoid liability because the “competent lawyer” standard adopted by the Seventh Circuit does not apply to the FCCPA in the Eleventh Circuit.
A copy of the opinion in Murray v. Nationstar Mortgage LLC is available at: Link to Opinion.
The borrower signed a note and mortgage on Jan. 21, 2008. The note provided for a fixed interest rate of 6.875% for the life of the loan. The borrower defaulted and the mortgagee sued to foreclose.
In May 2014, the parties entered into a stipulation that provided for the entry of a final judgment of foreclosure, and a waiver of any deficiency. The final judgment provided that interest on the balance owed would accrue at the legal rate for judgments under Florida law, then 4.75%.
In August 2015, the servicer sent to the borrower’s attorney an account statement attempting to collect the principal balance owed at an interest rate of 6.875%, instead of the legal rate for judgment under Florida law as provided in the final judgment of foreclosure.
In September 2015, the borrower filed a complaint alleging that the servicer violated sections 559.72 and 559.77 of the FCCPA because it attempted to collect on a debt that was no longer owed due to the terms of the joint stipulation and consent judgment of foreclosure.
The servicer moved for summary judgment, arguing that it was required to send the statement under the federal Truth in Lending Act (TILA), which preempted the FCCPA, and, alternatively, the statement was sent to borrower’s counsel, who was not misled.
After a hearing, the trial court granted the mortgagee’s motion, finding that it was entitled to judgment as a matter of law because TILA required the statement to be sent and no competent attorney would have been misled by the statement. The borrower appealed.
On appeal, the Appellate Division of the trial court explained that subsection 559.72 of the FCCPA provides that “[i]n collecting consumer debts, no person shall … [c]laim, attempt, or threaten to enforce a debt when such person knows that the debt is not legitimate, or assert the existence of some other legal right when such person knows that the right does not exist.”
Subsection 559.77(5) of the FCCPA provides that in applying section 559.72, “due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to the federal Fair Debt Collection Practices Act.”
The Appellate Division disagreed with the trial court’s reasoning that “the statement was required under TILA and thus could not violate the FCCPA as a matter of federal preemption.”
The Appellate Division explained that while federal law may preempt state law under the U.S. Constitution’s Supremacy Clause, “[i]mplied conflict preemption occurs only when it is physically impossible to simultaneously comply with both federal and state law on a topic, or where state law ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’”
The relevant TILA implementing regulation, 12 C.F.R. § 1026.41, requires among other things that a mortgage loan servicer “provide the consumer, for each billing cycle, a periodic statement … [that includes] the amount due, the amount of the outstanding principal balance, and the current interest rate in effect for the mortgage loan.”
The mortgagee argued that because no foreclosure sale had taken place, the note and mortgage were not extinguished and, therefore, it was required by TILA to continue sending account statements.
The Appellate Division disagreed, finding that the account statement did not comply with TILA.
The Court noted that “[i]n accordance with the joint stipulation, which waived any deficiency, and the subsequent entry of the judgment of foreclosure, the amount due is zero, the outstanding principal balance is zero, and the current interest rate is 4.75%.” Therefore, the Appellate Division held, “[r]egardless of whether a sale has occurred, based upon the final judgment, [the servicer] is no longer able to recover the amounts listed on the account statement, therefore its account statement was not required under TILA.”
Because the statement was not required by TILA, the Court ruled it could not preempt the FCCPA “and it was error to grant summary judgment on that basis.”
Turning to the trial court’s alternative basis for granting summary judgment in the servicer’s favor, the Appellate Division explained that although the U.S. Court of Appeals for the Seventh Circuit held in 2007 in Evory v. RJM Acquisitions Funding LLC that no competent attorney would be misled by an account statement such as the one at issue, in 2016 the U.S. Court of Appeals for Eleventh Circuit, which includes Florida, held in Bishop v. Ross Earle and Bonan, P.A. that “there is ‘no basis in the FDCPA to treat false statements made to lawyers differently from false statements made to consumers themselves.’”
The Appellate Division opted to follow the Eleventh Circuit’s interpretation of the FDCPA, and held that “the competent lawyer standard employed by Evory does not apply to the FCCPA. The trial court erred by entering summary judgment based upon that standard.”
Accordingly, the trial court’s summary judgment in the servicer’s favor was reversed and the case remanded for further proceedings.