Lesson. Although servicers usually are not the actual owners of residential mortgage loans, they nevertheless may be the proper party to resolve the foreclosure action or to negotiate a settlement. Also, unless the debt was in arrears when the servicer obtained its role, the Fair Debt Collection Practices Act will not apply to communications by the servicer.
Case cite. Turner v. Nationstar, 2017 U.S. Dist. LEXIS (S.D. Ind. 2017) (pdf).
Legal issues. Whether the defendant loan servicer was a “debt collector” subject to the Fair Debt Collection Practices Act (“FDCPA”), specifically 15 U.S.C. 1692e(2)(A). Also, whether the defendant committed a “deceptive act” in violation of the Indiana Home Loan Practices Act (“IHLPA”), Ind. Code 24-9-1 et seq.
Vital facts. For background, click on last week’s post, which also discussed Turner. The borrower claimed that, during a mediation conference, the servicer committed a deceptive act by leading the borrower to falsely think that the servicer owned the loan “such that [borrower] believed he was bargaining with the owner of the loan when he agreed to exchange his counterclaim against [servicer] for a loan modification.” The borrower also alleged that, after the entry of the state court foreclosure judgment, the servicer wrongfully sent the borrower account statements with a debt amount different from the judgment amount.
Procedural history. The defendant servicer filed a motion for summary judgment. Judge Young’s ruling on the motion is the subject of this post.
The IHLPA at I.C. 24-9-2-7(1)(a) defines a deceptive act as:
(1) an act or a practice as part of a mortgage transaction . . . , in which a person at the time of the transaction knowingly or
(A) makes a material misrepresentation; or
(B) conceals material information regarding the terms or conditions of the transaction. . . .
For the FDCPA to apply, “two threshold criteria must be met:” (1) the defendant must be a “debt collector” and (2) the communication by the debt collector forming the basis of the claim “must have been made in connection with the collection of any debt.” 15 U.S.C. 1692a(6), c, e and g.
A “debt collector” is:
any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.
Loan servicing agents are not “debt collectors” unless the debt was in arrears at the time the servicer obtained that role.
Holding. The Southern District of Indiana granted summary judgment for the servicer on the IHLPA and FDCPA claims brought by the borrower.
As to the IHLPA action, the Court concluded that the servicer did not conceal “material” information about its role/status because the servicer established that it was the proper party to resolve the foreclosure action. In other words, whether the servicer was or was not the owner of the loan was immaterial in the Court’s view.
Regarding the FDCPA claim, the Court found that the defendant was the agent of the original creditor and acted as the servicer “well before [the loan] was in default.” As such, the servicer did not meet the definition of a “debt collector” under the FDCPA.
Loan Servicers As Plaintiffs In Foreclosure Cases (also the Turner dispute)
I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at John.Waller@WoodenLawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.