Second Circuit Holds Payoff Letter Stating that “Total Amount Due” May Include Other Amounts that Are Not Yet Due Does Not Satisfy FDCPA Amount Due Requirement

By:      Jonathan Robbin and Thomas Brodowski

In Andrew Carlin, individually and on behalf of a class v. Davidson Fink LLP, Case No. 15-3105-cv (2d Cir. March 29, 2017),[1] the Second Circuit vacated an order and judgment of the District Court in favor of a debt collector, holding (1) that a mortgage foreclosure complaint is not an “initial communications” for purposes of § 1692g liability; and (2) that a Payoff Statement including the language “estimated fees, costs, additional payments, or escrow disbursements not yet due” does not state the “amount of the debt” as required by the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”).

In June 2013, Davidson Fink filed a foreclosure complaint (the “Complaint”) against Carlin, seeking to foreclose on a 2005 mortgage given by Carlin that was allegedly in default. The Complaint included a “Notice Required by the Fair Debt Collection Practices Act,” which referred Carlin to the Complaint for the “amount of the debt” and notified Carlin that he had thirty (30) days to dispute the validity of the debt. The Complaint, however, failed to state the amount of the debt.

Thereafter, Carlin sent Davidson Fink a letter on July 12, 2013 disputing the debt and requesting a verification of the exact amount purportedly owed. In response, Davidson Fink sent Carlin a letter dated August 9, 2013 which contained, among other things, a Payoff Statement. The Payoff Statement identified a “Total Amount Due” of $205,261.79. But, in small print below the amount due, the Payoff Statement included the following disclaimer:

“To provide you with the convenience of an extended “Statement Void After” date, the Total Amount Due may include estimated fees, costs, additional payments and/or escrow disbursements that will become due prior to the “Statement Void After” date, but which are not yet due as of the date this Payoff Statement is issued.”

Notably, the Payoff Statement did not include the amounts of the estimated fees, costs, or additional payments, nor did the Payoff Statement indicate how those amounts were calculated. Consequently, Carlin sued Davidson Fink for alleged violations of the FDCPA. Davidson Fink filed a motion to dismiss, which the District Court originally denied, but then reversed its ruling following Davidson Fink’s subsequent motion for reconsideration. Carlin appealed.

Under the FDCPA, a debt collector must, within five days after an initial communication with a consumer debtor in connection with the collection of any debt, send the consumer a written notice containing the amount of the debt. See 15 U.S.C. § 1692g(a). The FDCPA does not define an “initial communication,” but states that “[a] communication in the form of a formal pleading in a civil action shall not be treated as an initial communication for purposes of subsection (a) of this section.” 15 U.S.C. § 1692g(d) (added by the Financial Services Regulatory Relief Act of 2006, Pub. L. No. 109-351, § 802(a), Stat. 1966, 2006-07 (2006)). As such, the Second Circuit also held that mortgage foreclosure complaints are not “initial communications” for purposes of § 1692g liability.

Despite the Complaint not being the initial communication, the Second Circuit held that Davidson Fink’s follow-up August 9, 2013 letter (“August Letter”) constituted the “initial communication” and was sent in connection with the collection of the debt.[2] Having determined that the August Letter was an initial communication sent to collect a debt, the Second Circuit also held that the amount of the debt stated in the August Letter was insufficient under § 1692g. Using the least sophisticated consumer standard, the Second Circuit held that because the Payoff Statement did not identify the “estimated fees, costs, [and] additional payments,” nor did it explain how those amounts are calculated, the Court was unable to determine if those amounts were properly part of the debt owed.[3] Thus, absent fuller disclosure, an unsophisticated consumer would not be able to do so either.

The Second Circuit emphasized that debt collectors like Davidson Fink can take added measures to shield themselves from FDCPA liability by revising their standard payoff statements or by including the safe harbor language formulated in the Avila v. Riexinger & Assocs., LLC[4] case.

Thus, debt collectors should ensure that Payoff Statements are clear and ambiguous as to the date in which the amount stated in the payoff will be good through and that if the funds are not received by that date, payment will increase over time.

[1] Carlin v. Davidson Fink LLP, 2017 U.S. App. Lexis 5438 (2d Cir. March 29, 2017)

[2] Plaintiff Carlin argued his July 12, 2013 letter to Davidson Fink constituted the “initial communication” but, it is well-settled that communications initiated by debtors to debt collectors are not “initial communications” under the FDCPA. See, e.g. Derisme v. Hunt Leibert Jacobson P.C., 880 F. Supp. 2d 339, 367-68 (D. Conn. 2012); Lane v. Fein, Such & Crane, LLP, 767 F. Supp. 2d 382, 387 (E.D.N.Y. 2011); Gorham-Dimaggio v. Countrywide Home Loans, Inc., No. 1:05-cv-0583, 2005 WL 2098068, at *2 (N.D.N.Y. Aug. 30, 2005).

[3] The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction…, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5).

[4] 817 F.3d 72 (2d Cir. 2016) (holding though not required by the text of the statute, a notice would also satisfy § 1692g if it used language such as: “As of today, [date], you owe $  . This amount consists of a principal of $   , accrued interest of $   , and fees of $   . This balance will continue to accrue interest after [date] at a rate of $   per [date/week/month/year].”).

Second Circuit Upholds Bankruptcy Court Order Denying Borrowers’ RESPA Claim on the Grounds the QWR Was Mailed to the Incorrect Address

By: Andrea M. Roberts

In Barry F. Mack v. ResCap Borrower Claims Trust, Case Number 16-304 (2d Cir. Jan. 31, 2017) the Second Circuit recently affirmed the Bankruptcy Court’s order sustaining Residential Capital, LLC’s (“ResCap”) objection to the borrowers, Barry and Cheryl Mack’s (“Borrowers”) Proof of Claim for damages based on, among other things, failure to respond to a Qualified Written Request (“QWR”) in violation of the Real Estate Settlement Procedures Act (“RESPA”). The Second Circuit held that Borrowers’ Proof of Claim was properly denied, because Borrowers did not mail the QWR to the designated address and therefore, ResCap’s lack of response did not violate RESPA.

In 2009 Borrowers sent a QWR to GMAC Mortgage LLC (“GMAC”) querying why an erroneous foreclosure action against them remained pending even though GMAC had notified them that they were not in default. Notably, Borrowers did not send the QWR to the address designated by GMAC for receipt of QWRs. Instead, Borrowers sent the QWR to the address designated for “General Inquiries.” GMAC never responded to Borrower’s QWR.

In May 2012, ResCap and 51 of its subsidiaries, including GMAC, filed for bankruptcy.[1] Borrowers timely filed a Proof of Claim for money damages premised upon, among other things, a violation of RESPA for GMAC’s failure to respond to the QWR. After a trial, the Bankruptcy Court sustained ResCap’s objection to the Borrower’s RESPA claim on the grounds that the Borrowers failed to mail the QWR to the correct address. Borrowers appealed.

Under RESPA, a mortgage servicer can “establish a designated address for QWRs.” See Roth v. CitiMortgage Inc., 756 F.3d 178, 181 (2d Cir. 2014). If a servicer designates a specific address for receipt of QWRs, “then the borrower must deliver its request to that office in order for the inquiry to be a ‘qualified written request.’” Id. (quoting RESPA, § 6, Transfer of Servicing of Mortgage Loans (Regulation X), 59 Fed. Reg. 65,442, 65,446 (Dec. 19, 1994)). The failure to send the QWR to a servicer’s designated address “does not trigger the servicer’s duties under RESPA.” Id. (quoting Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1148-49 (10th Cir. 2013).

The Second Circuit found that although there is no dispute that the Borrowers sent a QWR to GMAC, and GMAC failed to respond to the QWR, because Borrowers did not send the QWR to GMAC’s designated address for receipt of QWRs, the duty to respond to the Borrower’s letter under RESPA was never triggered. Therefore, GMAC did not violate RESPA. Accordingly, the Second Circuit held that the Bankruptcy Court properly sustained ResCap’s objection to the Borrowers’ RESPA claim.

In practice, borrowers or their counsel have attempted to attach purported QWRs to pleadings and then allege RESPA violations for failure to respond. This decision confirms that financial institutions cannot be liable under RESPA if the QWR is not directed to the designated address.

[1] GMAC is a named debtor under the Borrower Claims Trust Agreement dated December 17, 2013 (the “Agreement”). Under the Agreement, in pursuing any borrower-related causes of action, such matters and/or execution of any documents relating thereto, are to be in the name of “ResCap Borrower Claims Trust.”