Eleventh Circuit Court of Appeals Finds that "Dunning" Notice Enforcing a Security Interest May Give Rise to FDCPA Claim

Foreclosure FDCPA Mortgage Servicing

On May 1, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a lower court’s dismissal of an FDCPA claim, finding that the contents of a “dunning” notice from the lender’s foreclosing law firm constitutes an attempt to collect a debt under the FDCPA. Reese v. Ellis, Painter, Rattertree & Adams, LLP, No. 10-14366, 2012 WL 1500108 (11th Cir. May 1, 2012). The borrowers received a letter and documents from the lender’s law firm demanding payment of the debt on the borrowers’ defaulted mortgage loan and threatening to foreclose on their home if they did not pay the outstanding debt. The borrowers filed a class action lawsuit against the law firm alleging that the communication violated the FDCPA. The district court dismissed the complaint for failure to state a claim under the FDCPA. On appeal, the court held that the borrowers’ obligation to pay off the promissory note, which the court distinguished from a security interest, represents a debt under the FDCPA. The court then rejected the law firm’s argument that the purpose of the letter and accompanying documents was not to collect a debt, but rather to inform the borrowers of the lender’s intent to enforce its security interest through possible foreclosure. The court determined that the documents at issue, which contained disclaimers such as “This law firm is acting as a debt collector attempting to collect a debt,” had a dual purpose of providing notice of foreclosure and collecting a debt. In so holding, the court noted that following the law firm’s reasoning would create a giant loophole in the FDCPA wherein the law only would apply to efforts to collect on unsecured debt and would permit collectors to “harass or mislead [secured] debtors without violating the FDCPA.”