NY Appellate Court Holds Default Letter Stating Lender “Will Proceed to Automatically Accelerate” Did Not Accelerate the Debt and Thus Did Not Trigger the Statute of Limitations

Diana M. Eng and Alina Levi

In U.S. Bank N.A. v. Gordon, 176 A.D.3d 1006 (2d Dept. 2019), the New York Appellate Division, Second Department, held that a notice of default stating that if the loan was not made current, the lender “will automatically accelerate [the] loan,” was “merely an expression of future intent” and therefore did not accelerate the borrowers’ debt. As such, the Second Department held that the notice of default did not trigger the statute of limitations.

Summary of Facts and Background

On or about November 3, 2005, Steve and Ashia Gordon (“Defendants”) executed a note (“Note”), which was secured by a mortgage (“Mortgage”) against a property in Queens, New York. On or about July 1, 2011, Defendants defaulted on the loan. As a result, America’s Servicing Co. (“ASC”) sent a letter to Defendants, dated September 21, 2008 (“Notice of Default”), advising them that the loan was in default, and that, “[u]nless the payments on your loan can be brought current by October 21, 2008, it will become necessary to accelerate your Mortgage Note and pursue the remedies provided for in your Mortgage or Deed of Trust.” Moreover, the Notice of Default warned that “failure to pay this delinquency, plus additional payments and fees that may become due, will result in the acceleration of your Mortgage Note. Once acceleration has occurred, a foreclosure action . . . may be initiated.” In addition, the Notice of Default stated that “[t]o avoid the possibility of acceleration,” Defendants were required to make certain payments by a specific time, or ASC “will proceed to automatically accelerate your loan.” (Emphasis added).

On June 29, 2017, plaintiff U.S. Bank N.A. (“U.S. Bank”) commenced a foreclosure action to enforce the Defendants’ Mortgage in the Queens County Supreme (the “Lower Court”). Defendants moved to dismiss the action pursuant to CPLR 3211(a)(5) alleging that the statute of limitations to foreclose had expired. Specifically, Defendants argued that the entire debt was accelerated on September 21, 2008, based on the Notice of Default. Continue reading

CFPB Proposes Regulations to Clarify, Modernize, and Implement the Fair Debt Collection Practices Act

Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, Nicole R. Topper, Scott E. Wortman, and Paul Messina Jr.

Financial institutions and debt collectors should take note of, and provide comments on, the CFPB’s recent Notice of Proposed Rulemaking, which attempts to provide consumers with “clear protections against harassment by debt collectors and straightforward options to address or dispute debts.”      

On May 7, 2019, the Consumer Financial Protection Bureau (“CFPB”) released its long-awaited Notice of Proposed Rulemaking (“NPRM”), aiming to clarify and modernize the Fair Debt Collections Practices Act (“FDCPA”). The over 500-page NPRM marks the CFPB’s latest half-decade long effort to issue the first set of substantive rules interpreting the FDCPA since its passage in 1977.

Background

Seeking to curb abuses in the debt collection industry, Congress enacted the FDCPA in 1977. However, with the passage of time and the creation of new technologies, ambiguities and uncertainties in the industry developed. Without any federal agency delegated authority to write substantive rules interpreting the FDCPA, the courts were left with the sole burden of doing so. That changed in 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) delegating authority to the CFPB.

Citing the ongoing and abundance of consumer complaints, as well as the need to adapt the FDCPA for modern technologies, the CFPB called for public input on potential new regulations in 2013, and again in 2016, releasing an outline of proposals under consideration. This week’s NPRM incorporates many of those ideas with some adjustments. The NPRM will be open for 90 days for public comment following its publication in the Federal Register.

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Second Circuit Holds No Need to Identify Components of Debt Where Collection Letter Provides Exact Amount Owed and Reaffirms Use of Safe Harbor in Holding Debt Collector’s Letter Did Not Violate the FDCPA

Jonathan M. Robbin, Diana M. Eng, and Namrata Loomba

In Kolbasyuk v. Capital Management Services, LP, No. 18-1260 (2d Cir. 2019), the Second Circuit recently held that a debt collector’s letters informing a consumer of the total present amount of debt owed satisfies Fair Debt Collection Practices Act (“FDCPA”) requirements. The Second Circuit’s decision clarified that, under the FDCPA, collection letters are not required to inform consumers of the debt’s constituent components, or the rates by which the debt may later increase.

Summary of Facts and Background

In July 27, 2017, Capital Management Services, LP (“CMS”) sent Plaintiff a collection letter stating “[a]s of the date of this letter, you owe $5918.69.” The letter further stated, “[b]ecause of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater.” Continue reading

U.S. Supreme Court Holds Foreclosure Firms Conducting Nonjudicial Foreclosures Are Not Debt Collectors Under the FDCPA

By: Wayne Streibich, Diana M. Eng, Cheryl S. Chang, Jonathan M. Robbin, and Namrata Loomba

The United States Supreme Court holds businesses conducting nonjudicial foreclosures are not “debt collectors” under the FDCPA, but lenders and foreclosure firms should take note that the Court specifically chose to leave open the question of whether businesses that conduct judicial foreclosures are “debt collectors” under the statute. 

On March 20, 2019, in Obduskey v. McCarthy, the Supreme Court of the United States issued an opinion holding businesses conducting nonjudicial foreclosures are not “debt collectors” under the Fair Debt Collection Practices Act (“FDCPA”). The Supreme Court limited its decision to nonjudicial foreclosures.1 The Justices ruled 9-0 in the case, with Justice Breyer writing the opinion and Justice Sotomayor concurring.

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New York Appellate Court Rejects Usage of a Mortgage’s Reinstatement Provision as a Defense to the Expiration of the Statute of Limitations

By: Wayne Streibich, Diana M. Eng, Jonathan M. Robbin, and Diana M. Eng

On March 13, 2019, in a case of first impression, New York’s Appellate Division, Second Department (“Second Department”) issued a decision holding the reinstatement provision of a mortgage does not prevent the acceleration of the loan prior to entry of a foreclosure judgment. In Bank of New York Mellon v. Dieudonne, 2019 WL 1141973 (2d Dept. Mar. 13, 2019), the Second Department affirmed the Kings County Supreme Court’s decision granting defendant Dieudonne’s (“Defendant”) motion to dismiss the complaint pursuant to CPLR 3211(a)(5) because the foreclosure action was barred by the expiration of the statute of limitations. Specifically, the Second Department held that “the extinguishment of the defendant’s contractual right to de-accelerate the maturity of the debt pursuant to the reinstatement provision of paragraph 19 of the mortgage was not a condition precedent to the plaintiff’s acceleration of the mortgage” and, therefore, acceleration occurred upon commencement of the prior foreclosure action.

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Third Circuit Broadens Definition of “Debt Collector” under FDCPA to Include Entities That Acquire Debt but Outsource Collection of That Debt

By: Jonathan M. Robbin, Diana M. Eng, and Maria K. Vigilante

In Barbato v. Greystone Alliance, LLC et al., a recent precedential decision, the Third Circuit Court of Appeals held an entity whose business is the purchasing of defaulted debts for the purpose of collecting on them falls squarely within the “principal purpose” definition of the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692(a), even where the entity does not collect the debt and a third party is retained to do so. No. 18-1042, __ F.3d __ (3d Cir. 2019).

Specifically, Barbato expanded the Supreme Court’s holding in Henson v. Santander Consumer USA, 137 S. Ct. 1718 (2017) and rejected the defendant’s argument that Henson renders it a creditor rather than a debt collector because “its principal purpose is the acquisition—not the collection” of debt. Thus, the Barbato court held that where an entity meets the “principal purpose” definition, it cannot avoid the FDCPA’s requirements by retaining a third party to collect the debt.

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Ninth Circuit Holds That Fannie Mae Is Not a Consumer Reporting Agency under FCRA

By: Wayne StreibichCheryl S. Chang, Diana M. Eng, and Christine Lee

On January 9, 2019, a divided Ninth Circuit panel ruled that the Federal National Mortgage Association, or Fannie Mae, was not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act (“FCRA”). In Zabriskie v. Federal National Mortgage Association, the Ninth Circuit reversed the Arizona District Court’s holding that Fannie Mae acts as a consumer reporting agency when it licenses its proprietary software, Desktop Underwriter (“DU”), to lenders and that it is therefore subject to the FCRA. Zabriskie v. Fed. Nat’l Mortgage Ass’n, Nos. 17-15807, 17-16000, 2019 WL 137931 (9th Cir. Jan. 9, 2019).

The FCRA defines a “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of preparing or furnishing consumer reports.” 15 U.S.C. § 1681a(f). In reaching its conclusion, the Ninth Circuit specifically examined whether Fannie Mae’s licensing of its DU software constituted: (1) regularly engaging in the practice of assembling or evaluating consumer credit information and (2) for the purpose of preparing or furnishing consumer reports.

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