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The Homeowner Can Believe Everything They Read – Even if They Filed Bankruptcy
January 20, 2017

Federal appeals court gives effect to mortgage servicer’s disclaimers in monthly statements and letters and holds that homeowner is charged with carefully reading them and a basic level of understanding in what they say.

Recently, the United States Court of Appeals for the Fourth Circuit affirmed a trial court’s ruling that granted a mortgage servicer summary judgment on a homeowner’s claims that the servicer attempted to collect a debt from him despite the fact that he had gone through bankruptcy. In Lovegrove v. Ocwen Home Loans Servicing, L.L.C., No. 15-2158, 2016 WL 7378098 (December 20, 2016), the Fourth Circuit considered a case originating from the western part of a Virginia involving a homeowner who had filed a bankruptcy case and received an order discharging him from any personal liability that he had to repay his home mortgage. He still continued to live in the home, and although he had no personal liability on the debt, the lender had the ability to repossess the home if he didn’t continue to voluntarily make payments.

Ocwen was the servicer of the homeowner’s mortgage and sent him letters about the debt. Those letters contained the typical mini-Miranda warning that “[t]his communication is from a debt collector attempting to collect a debt; any information obtained will be used for that purpose.” The letters went on to state that “[h]owever, if the debt is in active bankruptcy or has been discharged through bankruptcy, this communication is not intended as and does not constitute an attempt to collect a debt.”

Ocwen also sent the homeowner monthly statements that listed a principal balance, the next payment due date, a payment coupon, and the total amount due. Nonetheless, under a section entitled “Important Messages,” the statements contained a disclaimer similar to the one in Ocwen’s letters and further said that, if the account is in a pending bankruptcy or has been discharged in bankruptcy, then “this statement is for informational purposes only and is not an attempt to collect a debt.”

Despite the disclaimers, the homeowner sued, claiming that Ocwen had violated the Fair Debt Collection Practices Act (“FDCPA”) because the monthly statements and letters attempted to collect a debt from him that was discharged in bankruptcy. Ocwen moved for summary judgment on the homeowner’s claims, essentially asking the trial court to grant it judgment and dismiss those claims. The trial court agreed with Ocwen and granted it summary judgment on the homeowner’s FDCPA claims.

The homeowner appealed. The Fourth Circuit approached the appeal with a “commonsense inquiry.” It noted that there is no bright-line when determining whether a communication seeks to collect a debt. It found that Ocwen’s letters and statements, which were non-threatening in nature, “contained clear and unequivocal disclaimers to establish that they were not in connection with the collection of a debt under [the homeowner’s] circumstances.” With regard to the monthly statements, the Fourth Circuit recognized that those statements generally requested payments. However, the disclaimers were sufficient to overcome that general request and rendered the statements merely informational in nature that “provid[e] an updated account summary.”

The Fourth Circuit noted that courts presume “a basic level of understanding and willingness to read with care.” In fact, it held that the homeowner was “deemed to have knowledge of these straightforward disclaimers.” Since the homeowner obviously knew that his personal liability on the debt had been discharged in bankruptcy, he “should have known that Ocwen was not attempting to collect a debt from him.”

The homeowner also had asserted claims based on Ocwen’s credit reporting related to his mortgage. Ocwen had moved for summary judgment on those claims as well, and the trial court granted that motion. On appeal, the Fourth Circuit considered that ruling and, like with the homeowner’s FDCPA claims, held that the trial court was correct.

If you have any questions about the FDCPA or any other issues, please contact us.

Consumer Finance Nicholas P. Mooney II