Addressing the FDCPA: Technical Errors Did Not Constitute FDCPA Violations

Kara Boyle co-authored this post.  

Claims involving the Fair Debt Collection Practices Act ("FDCPA") can be difficult to defeat on a motion to dismiss because the burden is placed on the debt collector to show that all statements in any debt collection notice are true.  In Hill v. Midland Funding, LLC, CCB-12-2397 (April 16, 2013) the United States District Court for the District of Maryland addressed some fairly technical errors relating to compliance with the FDCPA and concluded that they did not support a putative class action related to claims under the FDCPA.

How technical were these errors?  One of the Defendants in this case listed the address of its parent company, instead of the subsidiary in its lawsuits to seek repayment of a debt.   Only the subsidiary was licensed as the debt collector, and the FDCPA requires that all notices include the address of the licensed debt collector.   In addition, the Defendants also filed collection affidavits which were truthful, but that likely did not meet the standard required in a collections case because the affiants lacked personal knowledge.  Plaintiff argued that this was comparable to making a "false" statement.

The Court disagreed.  Defendants' actions of "filing lawsuits with an incorrect address and using truthful, but potentially insufficient, affidavits under Maryland Rule 3-306" did not support, as a matter of law, claims for violations of the FDCPA.

Yet Another Reaffirmation That FINRA Is For Customers Only

Used with permission, courtesy of Dave Cook @flicker

Kara Boyle co-authored this post.

If it was not clear from our March 6, 2013 post that courts in the Fourth Circuit really mean it when they say FINRA is "for customers only" then the Fourth Circuit's decision in Raymond James Financial Services, Inc. v. Cary, 709 F.3d 382 (4th Cir. 2013) will make the issue crystalline. 

Raymond James involved the application of FINRA Rule 12200 which controls who has standing to arbitrate.  Raymond James held that an investor cannot bring a FINRA arbitration under Rule 12200 if that investor only dealt with a business partner of a FINRA representative even if there was coordination among the partners and the sharing of referral fees.  That type of partnership is "insufficient" to establish the relationship necessary for FINRA Rule 12200 to apply.

The holding of Raymond James may be limited because, in this case, the investors had “no personal contact” with the FINRA representative, did not hold “any accounts including trade accounts” with the actual FINRA member “at any time,” and the investors had no understanding that they were purchasing securities from the true FINRA member.  In other words, there was no issue of agency as there would be where an investor believes that the investor is actually dealing with a FINRA member or if the FINRA member had given someone else actual or apparent authority to conduct business.

Nonetheless, if investors cannot compel a FINRA arbitration against a business partner who shares referral fees, one can conclude that the Fourth Circuit is serious when it states that FINRA arbitrations are FOR CUSTOMERS ONLY.

Read the whole opinion here.
http://www.ca4.uscourts.gov/opinions/Published/121053.p.pdf

Closing the HAMPer II?



Photo By: The Container Store

 By: Matt Cherep

On April 9, 2013, the District Court for the Eastern District of North Carolina joined the District Court for the District of Maryland in allowing a borrower’s common law claims arising out of a bank’s failure to comply with HAMP to survive a motion to dismiss. Robinson v. Deutsche Bank National Trust Co. as Trustee for Argent Securities Trust, Asset-Backed Pass-Through Certificate Series 2006-M1 and Homeward Residential Inc. f/k/a Am. Home Mortgage Servicing, Inc., No. 12-cv-590F, 2013 U.S. Dist. Lexis 50797 (E.D.N.C. Apr. 9, 2013). The Court took the view, as previously expressed by the 7th Circuit, that although HAMP does not allow a private right of action, it also does not preempt state common law claims. See Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547 (7th Cir. 2012).

Facts:

The plaintiff Borrower (“Borrower”) alleged that she was working with Homeward Residential Inc. (“Homeward”) on a loan modification. Robinson, 2013 U.S. Dist. Lexis 50797, at *4-9.  During the modification review process, Homeward commenced foreclosure proceedings.  A foreclosure hearing took place, but the Borrower did not attend, claiming that she believed her only option to keep the home was through a loan modification. The Borrower claimed that she consulted a bankruptcy attorney and was prepared to file Chapter 13 Bankruptcy to “save her home” if a foreclosure sale was imminent. According to the Borrower,  sometime after the foreclosure proceedings, Homeward advised her that the sale of her home would take place on June 6, 2012; however, Homeward also instructed her that if she submitted additional loss mitigation paperwork before June 6, 2012 her home would not be sold. The Borrower claimed that she called Homeward on June 4, 2012 to confirm this fact. During the June 4 phone call, the Borrower alleged that a Homeward employee told her that she needed to file additional paperwork, but that no foreclosure sale would take place pending the considerations of her loss mitigation application. After this phone call, the Borrower allegedly contacted her Bankruptcy attorney and canceled an appointment because of Homeward’s representations.

On June 6, 2012, the Substitute Trustee conducted the foreclosure sale. Defendant Deutsche Bank purchased the home at foreclosure sale.  The Deed of Trust was transferred to Deutsche Bank on June 20, 2012. The Borrower received a Temporary Restraining Order enjoining her eviction, and filed common law claims including Breach of Covenant of Good Faith and Fail Dealing, Constructive Fraud, Gross Negligence, and a claim under the North Carolina Unfair and Deceptive Trade Practices Act.

Analysis:

Attorneys for Deutsche Bank argued that any state law claims premised upon the bank’s failure to follow HAMP policies must be dismissed. Id. at *31.  In essence, Deutsche Bank argued that state law claims based on a bank’s lack of compliance with HAMP serve as an impermissible  end-run around the fact that HAMP does not create a private right of action.  Id.

Fourth Circuit district courts are divided on this issue. The District Court for the Eastern District of Virginia previously dismissed a borrower’s claims as “nothing more than an attempt to couch a HAMP violation – which provides no private right of action – under a different name.”  Monton v. Am.’s Serv. Co., No. 2:11-CV-678, 2012 WL 3596519 at **8-9 (E.D. Va. Aug. 20, 2012).  The District Court for the District of Maryland came down on the opposite side of the issue by holding that although HAMP does not create a private right of action, it does not necessarily follow that all state law claims based on violations of HAMP must be dismissed. Legore v. One West Bank, FSB, 2012 WL 4903087, at *4 (D. Md. Oct. 15, 2012).

Here, the Court sided with the District Court for the District of Maryland and allowed the Borrower’s common law claims to go forward.  Robinson, 2013 U.S. Dist. Lexis 50797, at *34.  The Court cited the 7th Circuit for the proposition that “the absence of a private right of action from a federal statute           provides no reason to dismiss a claim under a state law just because it refers to or incorporates some element of the federal law.” Wigod, 673 F.3d at 581. Given divergent opinions within district courts in the 4th Circuit, it may not be long before the Court of Appeals weight in on this issue. Stay tuned.

To Collect On Blank Indorsements, Make Sure There Are No Gaps

Photo: www.eatyourcareer.com

The Court of Appeals recently held that as long as there are no gaps in the indorsements, a bank, or other person or entity in possession of a negotiable promissory note indorsed in blank, is the holder of that note entitled to enforce it. Deutsche Bank Nat. Trust Co. v. Brock (“Brock”), 55 SEPT.TERM 2012, 2013 WL 1164508 (Md. Mar. 22, 2013).  To enforce the note, the holder need not prove how he, she or it came to possess it. 

The disputed holder of the note (“Note”) in Brock was BAC Home Loans Servicing LP (“BAC”) (now known as Bank of America, N.A.), the sub-servicer for the loan, which had the power of attorney from Deutsche Bank, trustee for the owner of the Note. 

The Court of Special Appeals characterized BAC as a nonholder in possession because the Note was not specifically indorsed to BAC.  Such a nonholder does not “enjoy the statutorily provided assumption of the right to enforce the instrument that accompanies a negotiated instrument.”  This meant that BAC could only enforce the Note if it could account for its possession of the unindorsed instrument by proving the transaction in which it was acquired.  Thus, BAC had the burden to prove how BAC obtained the note, and the court found that Deutsche Bank and BAC failed to meet this burden. 

The Court of Appeals reversed.  The Court distinguished this case from Anderson v Burson, 424 Md. 232, 35 A.3d 452 (2011), which the Court of Special Appeals had relied on.  Brock was distinguishable because there were no gaps in the indorsements.  In sum, the Court held that according to Maryland Commercial Law, § 3-301, BAC was in possession of a note that was indorsed in blank and was therefore the holder of the Note entitled to enforce it.

Read full opinion here: http://mdcourts.gov/opinions/coa/2013/55a12.pdf