The U.S. District Court for the Eastern District of New York recently granted in part and denied in part a mortgage servicer’s motion to dismiss a borrower’s claim that the servicing transfer notice supposedly violated the federal Fair Debt Collection Practices Act (FDCPA) because it allegedly did not disclose that the debt was increasing due to interest, and that a “door knocker” notice posted on the borrower’s door failed to state that it was from a debt collector.
The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2d Cir. 2016), a debt collector must disclose that a debt is increasing due to interest and fees, and accordingly denied the servicer’s motion to dismiss on that issue.
However, the Court granted the servicer’s motion to dismiss as to the claim that the “door knocker” notice failed to state that it was a communication from a debt collector because the least sophisticated consumer would understand that the letter was from a debt collector.
A copy of the opinion is available at: Link to Opinion.
The mortgage loan servicer began servicing the mortgage when it was in default. The servicer sent a servicing transfer notice to the borrower and advised him that “going forward, all mortgage payments should be sent to [the servicer], but that ‘[n]othing else about [the] mortgage loan will change.”
The letter also stated “[t]his notice is to remind you that you owe a debt. As of the date of this Notice, the amount of debt you owe is $412,078.34.” Id. The notice further stated that the servicer was “deemed to be a debt collector attempting to collect a debt and any information obtained will be used for that purpose.” Id. at *3.
Later, the servicer posted a notice on the door of the debtor’s home stating: “Date 02/23/17 Dear Borrower: Rego Baptiste URGENT NOTICE: Please contact your mortgage servicer immediately at: (800) 561-4567. Thank you.”
The borrower filed suit against the servicer asserting violations of 15 U.S.C. §1692e(10) for failing to disclose in the letter that the balance on his debt was increasing due to interest and of §1692e(11) for failing to state in the notice that it was from a debt collector.
The servicer moved to dismiss.
The Court rejected the servicer’s argument that the notice was not a collection attempt and thus not subject to § 1692e. Instead, the Court found that under Hart v. FCI Lender Servs., Inc., 797 F.3d 219 (2nd Cir. 2015), the notice was a collection attempt because it referenced the debt and directed that payments be sent to the servicer, it referenced the FDCPA and included the required § 1692g notice, and included a statement that it is an attempt to collect a debt.
The Court held that under Avila v. Riexinger & Associates, LLC, 817 F.3d 72 (2nd Cir. 2016), when a debt collector notified a debtor of an account balance, it must disclose that the “balance may increase due to interest and fees.” Avila, 817 F.3d at 76.
The Court also rejected the servicer’s argument that Avila should not apply because even a least sophisticated debtor knows that interest continuously accrues on an unpaid mortgage balance and that fees will be incurred if the mortgage is not timely paid. The Court pointed out that because the mortgage was in default at the time the servicer began servicing it, it was subject to the FDCPA and that there was no authority holding that servicers collecting on defaulted mortgages are treated differently than any other debt collectors under the FDCPA.
The Court found that the notice did not meet Avila’s safe harbor requirements and that such a violation would be material because it “could impede a consumer’s ability to respond to . . . collection.” Id. at *12. Accordingly, the Court denied the motion to dismiss as to the servicing transfer notice.
As for the “door knocker” notice, the Court found that a least sophisticated consumer would “surmise” that it was from the servicer “whom he would know as a debt collector.” Id. at *12. The Court found this sufficient because the FDCPA “requires no magic words or specific phrases to be used” but only requires that the least sophisticated consumer understand. The Court concluded that “even the least sophisticated consumer would know that a mortgage servicer is a debt collector.”
Accordingly, the Court granted the motion to dismiss as to the “door knocker” notice, but denied the motion as to the servicing transfer notice.