The U.S. Court of Appeals for the Fifth Circuit recently confirmed that a claim of lack of receipt of a notice of default and intent to foreclose does not establish any defect in foreclosure proceedings, and that borrowers can be liable for attorney’s fees for bringing an action against a mortgage servicer under the Fair Debt Collection Practices Act.

A copy of the opinion in LSR Consulting, LLC v. Wells Fargo Bank, N.A. is available at: Link to Opinion.

The borrowers defaulted on loans on two properties. The mortgagee foreclosed on both, following which the borrowers assigned any alleged claims they had against the mortgagee to LSR Consulting, LLC, their wholly-owned consulting company.

LSR filed suit against the mortgagee in state court for wrongful foreclosure and violation of the FDCPA, and the mortgagee removed the case to federal court. The trial court granted summary judgment in favor of the mortgagee and awarded attorney’s fees based on the FDCPA claim in favor of the mortgagee. LSR appealed on both grounds.

On appeal, the Fifth Circuit affirmed summary judgment in favor of the mortgagee with respect to the wrongful foreclosure claim because LSR could not prove any defect in the foreclosure sale proceedings.

LSR alleged the borrowers never received the Notices of Default and Intent to Foreclose regarding either of the properties, and that the borrower’s testimony to that effect created an issue of fact requiring a trial. The Fifth Circuit rejected this argument noting that the dispositive issue was the mailing of the notice rather than the receipt.

The mortgagee presented evidence that the notices were sent by certified mail in accordance with the terms of the deed of trust which provided notice “shall be deemed to have been given to Borrower when mailed by first class mail.” Additionally, the Court noted, Tex. Prop. Code §51.002(e) provides that “[s]ervice of a notice under this section by certified mail is complete when the notice is deposited in the United States mail.”

LSR argued that the mortgagee’s evidence of mailing the notifications was inadmissible because the declarations were not self-authenticating and were not authenticated by witness testimony attached to the motions for summary judgment.

The Fifth Circuit found these arguments without merit for two reasons. First, the Court noted that “[a]t the summary judgment stage, materials cited to support or dispute a fact need only be capable of being presented in a form that would be admissible in evidence.” (citing Fed. R. Civ. P. 56(c)(2)). Second, the Fifth Circuit held that the affidavits relied on by the trial court were sufficiently specific to infer the affiants had personal knowledge.

LSR did not appeal the summary judgment on the merits of its FDCPA claim, but did appeal the award of attorney’s fees. As you may recall, 15 U.S.C. § 1692k(a)(3) provides for the award of attorney’s fees to a prevailing defendant if the FDCPA action “was brought in bad faith and for the purpose of harassment.”

The Fifth Circuit found no abuse of discretion in awarding fees in favor of the mortgagee, as the mortgagee did not meet the FDCPA’s definition of “debt collector” because its principal purpose was not “the collection of any debts” and it did not “regularly collect[] or attempt[] to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 U.S.C. § 1692a(6). Citing Perry v. Stewart Title Co., 756 F.2d 1197 (5th Cir. 1985), the Fifth Circuit further noted that the legislative history of the FDCPA showed “conclusively” that a “debt collector” does not automatically include a mortgage servicing company.

The Fifth Circuit was apparently also swayed by the fact that LSR sued the mortgagee here and numerous other lenders under the same theory just days before the running of the statute of limitations. The Court also noted that it could be inferred that the borrowers assigned their claims to LSR, of which they were the principals, to limit their own personal liability in the event the lenders refused to settle.