A federal court in Maryland recently declined to dismiss a borrower's claims that the owner of a mortgage loan operated as a debt collection agency without the debt collection license required under state law in violation of the Fair Debt Collection Practices Act (FDCPA), the Maryland Collection Agency Licensing Act (MCALA), and the Maryland Mortgage Fraud Protection Act (MMFPA). The case demonstrates expanding potential liability to mortgage investors and others concerning debt collection and related activities that were previously believed to be excluded from exposure.

In Ademiluyi v. PennyMac Mortgage Investment Trust Holdings, the U.S. District Court for the District Of Maryland considered whether the borrower stated a claim against PennyMac Holdings, a mortgage investor and holder of the note in question, under the FDCPA for violations of the MCALA.

The court determined that the definition of "consumer claim" under the MCALA mirrors that of "debt" under the FDCPA. The court relied on a recent case, Glazer v. Chase Home Finance, in which the Sixth Circuit considered a home loan a "debt" so long as it meets the definition of "debt" under the FDCPA. The Sixth Circuit also observed that mortgage foreclosure is simply a method to satisfy a debt. The court concluded that the Fourth Circuit would likely follow suit and similarly hold that a foreclosure practice constitutes debt collection under the FDCPA.

Next, the court's analysis shifted to whether the plaintiff alleged a violation of a specific FDCPA provision concerning the plaintiff's debt. The plaintiff alleged that PennyMac Holdings' Notice of Intent to Foreclose represented a "threat" by a debt purchaser to foreclose on her mortgage in violation of 15 U.S.C. 1692e(5) and that PennyMac Holdings engaged in collection activity without a license. The court noted that, based on these allegations, PennyMac Holdings, the secured party on the note, could be liable for unfair or unconscionable means to collect the debt. The court was satisfied with the allegation that PennyMac Holdings sent the Notice of Intent to Foreclose "in connection with" the collection of the debt, which the court ruled is all the FDCPA requires.

On the mortgage fraud claims, the court found that the plaintiff stated a viable claim under the MMFPA, which creates a statutory duty to disclose and related action for fraud. Under the MMFPA, PennyMac Holdings had a duty to disclose material information about the mortgage lending process. Similar to the FDCPA claim, the plaintiff alleged that PennyMac Holdings violated its duty to disclose that it lacked the license required to operate in Maryland as a debt collection agency. The court agreed that such a disclosure can be material to a plaintiff who believes that the defendant is licensed and therefore engaged in lawful conduct.

The court held, however, that even though PennyMac Holdings did not possess the required license, the borrower was not relieved of her duty to pay her debt or entitled to any restitutionary damages for mortgage payments made to the company. The court stated that the "plaintiff cannot assert that, in paying an obligation that she was contractually bound to pay, she relied on defendant's alleged failure to disclose that it lacked a license. To conclude otherwise would result in a financial windfall to plaintiff that does not appear to be contemplated by the statute."