Northern District of Indiana Court Dismisses Borrower’s FDCPA Claim Concerning Force-Placed Insurance Notices
Lesson. Force-placed insurance letters issued to a borrower following a Chapter 7 BK discharge generally should not violate the FDCPA.
Legal issue. Whether a mortgage loan servicer’s post-bankruptcy, force-placed hazard insurance notices to the borrower violated the Fair Debt Collection Practices Act (FDCPA).
Vital facts. Plaintiff borrower/mortgagor sue defendant servicer. Borrower had been discharged through a Chapter 7 bankruptcy. Borrower and servicer had agreed that servicer could foreclose on the subject real estate, and servicer (for the lender/mortgagee) filed the foreclosure action. Allegedly, “nothing was done to advance the foreclosure for six months.” While the foreclosure case was pending, the servicer sent the borrower three “warning letters” related to the expiration of borrower’s hazard insurance. Specifically, the letters informed borrower “that hazard insurance was required on his property, demand[ed] proof of insurance, and inform[ed] him that [servicer] would purchase hazard insurance for the property on his behalf and ultimately at his expense.” Two of the letters had language about the servicer being a debt collector but stated that, if the borrower were the subject of a bankruptcy stay, the notice was “for compliance and informational purposes only and does not constitute a demand for payment or any attempt to collect such obligation.”
Procedural history. The defendant filed a motion to dismiss the plaintiff’s complaint. The U.S. District Court for the Northern District of Indiana granted the motion. The borrower appealed to the Seventh Circuit, but the appeal was dismissed before any ruling.
The FDCPA “bans the use of false, deceptive, misleading, unfair, or unconscionable means of collecting a debt.”
The Court stated that “for the FDCPA to apply, however, two threshold criteria must be met. First, the defendant must qualify as a ‘debt collector[.]’” “Second, the communication by the debt collector that forms the basis of the suit must have been made ‘in connection with the collection of any debt.’” (quoting 15 U.S.C. §§ 1692c(a)–(b), 1692e, 1692g).
The opinion went on to tell us that “whether a communication was sent ‘in connection with the collection of any debt’ is an objective question of fact.” Having said that, “the FDCPA does not apply automatically to every communication between a debt collector and a debtor.” Further, the Act “does not apply merely because a letter bears a disclaimer identifying it as an attempt to collect a debt.”
The Seventh Circuit “applies a commonsense inquiry” into the question of whether a communication is “in connection with the collection of any debt.” The district court noted that the Seventh Circuit examines several factors, including:
whether there was a demand for payment, the nature of the parties' relationship, and the purpose and context of the communications—viewed objectively. None of these factors, alone, is dispositive.
Holding. The Court found that the three letters were not communications “‘in connection with’ the collection of a debt,” and thus did not fall “within the ambit of the FDCPA.”
Policy/rationale. The Court addressed each the factors involved in the “commonsense inquiry,” and for that detailed analysis please review the opinion. The Court also touched upon other published decisions across the country on the issue. The opinion is well-written and seems to suggest that the outcome may have been a tough call, particularly considering that it resulted in a dismissal of the complaint. Having said that, this quote from the opinion is pretty strong:
These letters notified plaintiff that insurance was required for the property, and that if he did not provide proof of insurance or obtain insurance himself, insurance would be obtained at his expense. The letters explained that it may be in plaintiff's interest to obtain his own insurance policy, and encouraged him to do so by identifying the ways in which force-placed insurance was not to his benefit. Viewed objectively, the letters were merely informational notices, explaining plaintiff's options.
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