The Appellate Division of the Fifteenth Judicial Circuit of the State of Florida recently reversed dismissal of a federal Fair Debt Collection Practices Act claim alleging a debt collector's letter falsely represented a bank was the creditor of a loan.

In so ruling, the Appellate Division confirmed that even though a foreclosure action is not necessarily debt collection, the enforcement of a promissory note constitutes debt collection activity even if done in conjunction with the enforcement of a security interest, and even the debt collector stated it was seeking solely to foreclose the creditor's lien on the real estate, and would not be seeking a personal money judgment against the borrowers.

A copy of the opinion is available at:  Link to Opinion

A law firm sent borrowers two letters informing them that they were in default, a bank had accelerated all sums due, and the bank was the mortgage servicer and creditor to whom their debt was owed.  The letters stated they were sent in compliance with the FDCPA and should not be considered a payoff letter, but provided information on how to reinstate and pay off the loan.

In addition, the letters identified the law firm as a debt collector, but stated the firm was seeking solely to foreclose the creditor's lien on the real estate, and will not be seeking a personal money judgment against the borrowers.

Thereafter, the borrowers filed suit against the law firm alleging the letters falsely represented the bank was the creditor, another entity was the actual creditor of the note, and the letters would be deceptive to the least sophisticated consumer.

The law firm moved to dismiss arguing that the bank was in possession of the original note, endorsed in blank, and a foreclosure action does not qualify as debt collection under the federal Fair Debt Collection Practices Act (FDCPA).

The trial court dismissed the lawsuit and the borrowers appealed.

The Appellate Division reversed the dismissal and found the borrowers adequately stated a claim under the FDCPA.

As you may recall, to state a claim under the FDCPA, the borrowers must show (1) they were subjected to collection activity arising from consumer debt, (2) the law firm was a debt collector, and (3) the debt collector engaged in an act or omission prohibited by the FDCPA.

The Appellate Division recognized that, under Reese v. Ellis, 678 F. 3d 1211 (11th Cir. 2012) and Birster v. Am. Home Mortg. Serv., Inc., 481 F. App'x 579 (11th Cir. 2012), while a foreclosure action is not debt collection, enforcement of a promissory note constitutes debt collection activity even if done in conjunction with the enforcement of a security interest. 

In addition, only when a debt collector takes action exclusively related to the enforcement of a mortgagee's security interest, and unrelated to the note itself, does its activity fall outside the scope of the FDCPA, and implicit demands for payment are sufficient to find a communication an attempt to collect debt.

Here, the Court noted, the law firm's letters informed the borrowers of impending foreclosure action and advised that all sums recoverable under the note and mortgage were immediately due.

The letters further stated that (1) "[T]he entire principle balance and all other sums recoverable under the terms of the promissory Note and Mortgage are now due"; (2) "Additional interest will accrue after the date of this letter"; (3) "If you wish to receive figures to reinstate…or pay off your loan through a specific date, please contact this law firm at…"; and (4) "This law firm is attempting to collect a debt…"

The law firm argued the letters contained collection-related "mini-Miranda" disclosures required by the FDCPA that do not convert such foreclosure communications into debt collection efforts.  See, e.g., Diaz v. Fla. Default Law Group, P.L., No. 3:09-cv-524-J-32MCR (M.D. Fla. Jan. 3, 2011).

The Appellate Division distinguished Diaz as that decision was prior to Reese and Birster, and noted that Owens v. Ronald R. Wolfe & Associates, P.L., No. 13-61769-CIV (S.D. Fla. June 28, 2013) more recently held that identical language is evidence of collection efforts.

As the matter at hand involved only a motion to dismiss, the Appellate Division found the borrowers adequately pled they were subjected to collection activity arising from consumer debt and adequately pled that the law firm was a debt collector.

Moreover, accepting facts alleged in the complaint as true, the Appellate Division held the borrowers adequately pled the bank was not the creditor of their loan and the compliant should not have been dismissed for failure to state a claim.

The Appellate Division further rejected argument that the litigation privilege or the statute of limitations supported dismissal where Florida's litigation privilege does not extend to violations of federal law, such as the FDCPA, and the complaint was filed within the statute of limitations.

Accordingly, the Appellate Division reversed dismissal of the FDCPA claim.