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8th Cir. Confirms Various Loss Mit and Foreclosure Communications Not Subject to FDCPA

minnesota foreclosure lawThe U.S. Court of Appeals for the Eighth Circuit recently affirmed entry of summary judgment in favor of a mortgage servicer against a borrower’s claims that it violated the federal Fair Debt Collection Practices Act (FDCPA).

In so ruing, the Eighth Circuit concluded that the communications at issue regarding denial of the borrower’s loss mitigation application were not made in connection with an attempt to collect on the underlying mortgage debt, and thus not actionable under the FDCPA, 15 U.S.C. 1692, et seq., and that the inclusion of boilerplate “Mini-Miranda” language stating that the communications were “for the purpose of collecting a debt” did not automatically trigger the protections of the FDCPA.

A copy of the opinion in Heinz v. Carrington Mortgage Services, LLC is available at:  Link to Opinion.

In September 2016, the assignee to a twice-modified mortgage loan initiated foreclosure proceedings and advised the homeowner-borrower that a foreclosure sale was scheduled for Aug. 1, 2017.  The borrower again applied for loss mitigation assistance but was notified in March and May 2017 that his application was incomplete for failure to provide required documentation and was no longer under review.

On July 11, 2017, the borrower’s mortgage loan was transferred to a new servicer.  After being provided notice of the transfer, the borrower spoke with a representative of the servicer who confirmed that the Aug. 1, 2017 foreclosure sale would proceed, but invited the borrower to submit a loss mitigation package if he wished to prevent the sale. 

The borrower contacted the Minnesota Attorney General’s Office for assistance, who agreed to represent the borrower and whom the borrower asserts he relied upon to relay communications and information regarding his loan from the servicer.

The foreclosure sale was subsequently postponed to Sept. 9, 2017, and later to Nov. 14, 2017. Between August and November 2017, the borrower submitted requests and documentation for mortgage assistance, and the Minnesota AG’s Office notified the borrower that, on Nov. 7, 2017, the servicer confirmed to the AG’s office that the borrower’s application was complete and would force postponement of the foreclosure sale while awaiting a final determination.

Nevertheless, the scheduled sale proceeded on Nov. 14, 2017, where the mortgagee purchased the property.  The borrower subsequently received a letter from the servicer dated two days after the sale, which advised him that his loss mitigation application had been canceled and would not be considered. 

During the six-month redemption period, the AG’s Office requested that the servicer rescind the sale on the borrower’s behalf.  The servicer responded that it would not rescind the sale.  The letter explaining the decision stated that the borrower failed to provide all requisite documentation to complete the loss mitigation application and that the home had been sold to a third-party bidder at the foreclosure sale, although it had been sold to the mortgagee.

The borrower filed suit against the servicer in Minnesota state court, alleging that the servicer violated the FDCPA by making false representations about the borrower’s loss mitigation application and the foreclosure sale by ignoring his application and delaying communications so that the borrower could not take advantage of his legal remedies, along with various state law claims and requests for injunctive relief seeking rescission of the foreclosure sale and preventing eviction.  The servicer removed the action to federal court, and by the summary judgment stage, the borrower’s FDCPA claim was the lone remaining cause of action. 

The trial court granted summary judgment in the servicer’s favor, concluding that its communications and conduct with the borrower were not in connection with an attempt to collect a debt and that any post-sale communications were immaterial as they had no impact on the borrower’s legal rights.  The borrower timely appealed.

On appeal, the lone issue before the Eighth Circuit was whether certain challenged communications and conduct were made in connection with the collection of a debt. 

These included the servicer’s: (i) pre-sale letter cancelling his loss mitigation application for purported failure to provide requested documents; (ii) response to the AG’s complaint; (iii) representations by phone to the AG’s office that the borrower’s application was sent to underwriting and awaiting a decision, and; (iv) post-sale letter stating that the servicer did not receive all necessary information to complete the application before the deadline (along with prior representations it was complete) and that the property was sold to a third party (when, in fact, it was sold to the mortgagee). 

The borrower argued that the trial court erred in granting summary judgment because the evidence presented was sufficient to allow a jury to conclude that the servicer used false, deceptive, and misleading representations and unfair and unconscionable means to collect on the underlying mortgage debt and erroneously narrowed the “animating purpose” test.

As you may recall, the Eighth Circuit employs the “animating purpose test” to consider whether certain statements for conduct are in connection with the collection of a debt for the purposes of section 1692e of the FDCPA, which prohibits the use of any false, deceptive, or misleading representation or means in connection with the collection of a debt.  McIvor v. Credit Control Servs., Inc., 773 F.3d 909, 914 (8th Cir. 2014).

Under this test, “for a communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor.” Id.  “Though ‘[t]he “animating purpose[]” of the communication is a question of fact that generally is committed to the discretion of the jurors, not the court,’ where ‘a reasonable jury could not find that an animating purpose of the statements was to induce payment,’ summary judgment is appropriate.” Goodson v. Bank of Am., N.A., 600 F. App’x 422, 431 (6th Cir. 2015).

The borrower argued that the Supreme Court of the United States in Obduskey v. McCarthy & Holthus LLP, 139 S. Ct. 1029, 1036 (2019) indicated that nonjudicial foreclosure is a debt collection activity, even if the FDCPA exempts nonjudicial foreclosing parties from the definition of “debt collector.”  Therefore, the borrower argued, each of the identified communications were in connection with the attempt to collect a debt. 

However, the Eighth Circuit noted that, because the Supreme Court statement in Obduskey was rendered in consideration of whether a party qualified as a “debt collector” for the purposes of the FDCPA, and not in consideration of specific communications regarding foreclosure proceedings, the communications at issue still required individual consideration.  McIvor, 773 F.3d at 915 (although nonjudicial foreclosure is a debt collection activity, it does not follow that any communication generated during a nonjudicial foreclosure is made “in connection with the collection of a debt.”).

Reviewing the content of each of the communications, the appellate court agreed that none were made in connection with the collection of a debt. 

Specifically, neither the pre-sale letters to the borrower and AG’s office, nor the phone call between the servicer and the AG’s office evidenced any mention of the loan apart from identifying information and did not provide amounts due or demands for payment.  See Bailey v. Sec. Nat’l Servicing Corp., 154 F.3d 384, 388-89 (7th Cir. 1998) (holding that the communication was not made in connection with the collection of a debt because it merely described the status of the debtor’s account and the consequences of missing future payments); See, e.g., Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011). 

To the contrary, the Eighth Circuit found that these communications arguably thwarted the servicer’s attempts to arrange for payment of the mortgage indebtedness.  Similarly, the post-sale letter contained only basic identifying information of the loan and was not an attempt to collect a debt because the property had already been sold, and thus, any purported misrepresentations were also immaterial.  See Hill v. Accounts Receivable Servs., LLC, 888 F.3d 343, 346 (8th Cir. 2018) (“[B]ecause ‘[a] statement cannot mislead unless it is material, [] a false but nonmaterial statement is not actionable.’”

Moreover, despite the inclusion of a Mini-Miranda statement including language that the communications were “for the purpose of collecting a debt,” the boilerplate language did not automatically trigger the protections of the FDCPA. Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 386 n.3 (7th Cir. 2010); Goodson, 600 F. App’x at 432 (“[T]he standard disclaimer language—which stated that [the mortgagee] was ‘a debt collector attempting to collect a debt’—did not, by itself, transform the informational letter into debt collection activity.”).

Because the servicer’s conduct was not made or carried out in connection with an attempt to collect a debt, the Eighth Circuit also rejected the borrower’s arguments that the servicer ignored the borrower’s loss mitigation application and delayed communications to run out the statute of limitations on a potential claim of a violation of the Minnesota dual-tracking statute in violation of § 1692f.

Accordingly, the trial court’s entry of summary judgment in the servicer’s favor was affirmed.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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