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  • Massachusetts Appeals Court: Plaintiffs’ counterclaim under PHLPA filed after foreclosure sale is untimely

    Courts

    On April 7, the Massachusetts Appeals Court held that plaintiffs could not assert a violation of the Massachusetts Predatory Home Loan Practices Act (PHLPA) in connection with a foreclosure proceeding. In 2005, the plaintiffs obtained a loan to purchase a home but later defaulted on their mortgage. In 2016, the defendant loan servicer began foreclosure proceedings, and sent plaintiffs a right to cure letter followed by an acceleration notice more than 90 days later. Approximately a year later, the servicer sent the plaintiffs a notice of the foreclosure sale, purchased the property, and ultimately filed a summary process eviction action and motion for summary judgment, which the state housing court granted. The plaintiffs then filed a counterclaim alleging the servicer violated PHLPA § 15(b)(2). The servicer maintained, however, that it is “entitled to judgment as a matter of law because more than five years had passed between the time the [plaintiffs] closed on the loan and the time they brought their counterclaim for violation of the PHLPA,” and that, as such, “the five-year statute of limitations in § 15(b)(1) bars their counterclaim.”

    On appeal, the Appeals Court majority determined that while the five-year statute of limitations under § 15(b)(1) did not apply to the borrowers’ counterclaim, § 15(b)(2)—under which the plaintiffs brought their counterclaim—“provides that a borrower may employ a defense, claim, or counterclaim ‘during the term of a high-cost home mortgage loan.’” However, because a foreclosure sale following acceleration of a note and mortgage “concludes the term of a mortgage loan,” the Appeals Court deemed the plaintiffs’ counterclaim was untimely.

    Courts State Issues Appellate Mortgages Statute of Limitations Foreclosure

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  • New York Court of Appeals reverses mortgage foreclosure timeliness claims

    Courts

    On February 18, the New York Court of Appeals reversed appellate division orders in four cases concerning the timeliness of mortgage foreclosure claims, seeking to develop “clarity and consistency” for cases affecting real property ownership. In particular, the decision clarifies questions regarding what actions will constitute acceleration of a debt and how such acceleration can be revoked, or de-accelerated, which resets the foreclosure timeline.

    The Court of Appeals first addressed the question about how and when a default letter to a borrower constitutes an acceleration, thus commencing the six-year statute of limitations period for initiating a foreclosure action. With respect to two of the cases (appellants three and four), the Court of Appeals applied the ruling from Albertina Realty Co. v. Rosbro Realty Corp., which held “that a noteholder must effect an ‘unequivocal overt act’ to accomplish such a substantial change in the parties’ contractual relationship.” The Court of Appeals reviewed a default letter sent in one of the cases and agreed with the bank that merely warning a borrower of a potential future foreclosure via a default letter does not count as an “overt, unequivocal act.” “Noteholders should be free to accurately inform borrowers of their default, the steps required for a cure and the practical consequences if the borrower fails to act, without running the risk of being deemed to have taken the drastic step of accelerating the loan,” the Court of Appeals stated. Instead, the letter must be accompanied by some other overt, unequivocal act. In addition, the Court of Appeals also reviewed a portion of the appellate division’s decision in appellant four’s case, which held that the bank “could not de-accelerate because it ‘admitted that its primary reason for revoking acceleration of the mortgage debt was to avoid the statute of limitations bar.’” The Court of Appeals majority wrote, “We reject the theory. . .that a lender should be barred from revoking acceleration if the motive of the revocation was to avoid the expiration of the statute of limitations on the accelerated debt. A noteholder's motivation for exercising a contractual right is generally irrelevant.”

    The Court of Appeals also addressed the issue of “whether a valid election to accelerate, effectuated by the commencement of a prior foreclosure action, was revoked upon the noteholder’s voluntary discontinuance of that action” in the two other cases (appellants one and two). According to Court of Appeals, when a noteholder has accelerated a loan by filing a foreclosure action, “voluntary discontinuance” of that foreclosure action de-accelerates the loan unless the noteholder states otherwise. Thus, the noteholder can later choose to re-accelerate the loan and file another foreclosure action with a new six-year statute of limitations period, the Court of Appeals wrote, reversing appellate division orders that had dismissed the two cases as untimely.

    While largely unanimous, one judge issued a dissenting opinion on two of the rulings concerning whether the noteholders effectively revoked acceleration. The judge stated that if the court is going to impose a deceleration rule based on a noteholder’s voluntary withdrawal of a foreclosure action, she would require that noteholders “provide express notice to the borrower regarding the effect of that withdrawal.”

    Courts Mortgages Appellate State Issues Foreclosure Statute of Limitations

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  • District court advances CFPB action against bank for alleged TILA, CFPA violations

    Courts

    On December 1, the U.S. District Court for the District of Rhode Island denied a national bank’s motion to dismiss a CFPB lawsuit alleging violations of the Consumer Financial Protection Act (CFPA) and TILA, rejecting the bank’s arguments that, among other things, the CFPB’s claims were time-barred and that the case cannot proceed because the CFPB’s structure violates constitutional separation-of-powers identified in Seila Law LLC v. CFPB. As previously covered by InfoBytes, the CFPB filed suit in January against the bank alleging, among other things, that when servicing credit card accounts, the bank failed to properly (i) manage consumer billing disputes for unauthorized card use and billing errors; (ii) credit refunds to consumer accounts resulting from such disputes; or (iii) provide credit counseling disclosures to consumers. According to the CFPB, the alleged conduct “began in 2010 or earlier and ended, depending on the violation, sometime in 2015 or 2016.” The CFPB also noted that the parties signed agreements tolling all relevant statutes of limitations from February 23, 2017, until January 31, 2020. The bank argued that the CFPB’s claims are governed by section 1640 of TILA with its one-year statute of limitations, but the CFPB countered that its claims were brought pursuant to section 1607 of TILA, which provides a “three-year discovery period.”

    In denying the bank’s motion to dismiss, the court concluded that the tolling agreements were valid and that the three-year limit under section 1607 applied because “plain language indicates that § 1640 only governs cases brought by individuals or state attorneys general,” whereas § 1607 “provides the cause of action for federal enforcement agencies such as the CFPB.” Furthermore, the court determined that because § 1607 “does not contain a statute of limitations,” and “instead stat[es] that cases brought by the CFPB ‘shall be enforced under. . . subtitle E of the [CFPA],’ the action is governed by subtitle E’s requirement that cases be brought within three years of discovery by the CFPB.” The court also dismissed the bank’s constitutional claims, ruling, among other things, that the argument is moot following the U.S. Supreme Court’s decision in Seila, which held that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB (covered by a Buckley Special Alert).

    Courts CFPB CFPA TILA Seila Law Statute of Limitations Enforcement

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  • 4th Circuit holds FDCPA’s limitation period restarts at each new violation

    Courts

    On July 2, the U.S. Court of Appeals for the Fourth Circuit vacated the dismissal of an action alleging violations of the FDCPA, concluding that each violation of the FDCPA is governed by its own limitation period. According to the opinion, in April 2018, homeowners filed a complaint against a law firm retained by their homeowners’ association for allegedly violating various provisions of the FDCPA for collection actions taken between April 2016 and February 2018. The district court dismissed the action, concluding that the entire complaint was time-barred because the “FDCPA’s limitations period runs from the date of the first violation, and that later violations of the same type do not trigger a new limitations period under the Act.”

    On appeal, the 4th Circuit disagreed with the lower court. Specifically, the appellate court noted that “nothing in the FDCPA suggests that ‘similar’ violations should be grouped together and treated as a single claim for purposes of the FDCPA’s statute of limitations.” And, similar to holdings of other circuits, the 4th Circuit stated that the “FDCPA’s limitations period runs anew from the date of each violation.” While the homeowners did not dispute that several alleged violations fall outside of the FDCPA’s one-year limitations period, the appellate court agreed that the district court erred in dismissing the entire complaint, because it contained at least two potential violations occurring within one-year of the April 2018 filing date.

    Courts Appellate Fourth Circuit FDCPA Statute of Limitations Debt Collection

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  • Appellate court affirms dismissal of RESPA kickback suit

    Courts

    On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”

    The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.

    On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.

    Courts Appellate Fourth Circuit RESPA Class Action Statute of Limitations Kickback Mortgages

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  • 5th Circuit: Non-party plaintiff cannot bring action to enforce violation of CFPB consent order

    Courts

    On March 4, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment in favor of a debt collector (defendant) accused of violating the FDCPA and the terms of a CFPB consent order. According to the opinion, the defendant attempted to collect a credit card debt from the plaintiff that the plaintiff did not recognize. In December 2014, the defendant filed suit to collect the past due debt. In the meantime, the CFPB issued a consent order against the defendant for violations of the FDCPA (covered by InfoBytes here) while the parties awaited trial. Thereafter, the plaintiff filed a complaint with the CFPB regarding the validity of the debt, but the Bureau closed that complaint after verifying the defendant’s ownership of the plaintiff’s debt. The plaintiff responded by filing his own lawsuit in March 2017, claiming the defendant violated the FDCPA by (i) “lacking validation of his debt prior to his January 2016 trial”; (ii) failing to timely validate his debt in violation of provisions of its consent order with the CFPB; and (iii) “misrepresenting that it intended to prove ownership of his debt if contested.” The district court granted summary judgment for the defendant based on the plaintiff’s failure to prove actual damages.

    On appeal, the appellate court determined that the district court erred in ruling that the plaintiff failed to plead actual damages, finding that “the FDCPA does not require proof of actual damages to ground statutory damages.” However, the appellate court did not reverse the district court’s decision. Instead, the appellate court affirmed, holding that the plaintiff’s debt validation claims were time-barred because he did not file suit within the FDCPA’s one-year statute of limitations. Regarding the other two claims, the appellate court stated that while the claims were not time-barred, the plaintiff lacked standing because “private persons may not bring actions to enforce violations of consent decrees to which they are not a party.” The CFPB’s consent order with the defendant specified that the CFPB was the enforcer of the order, and its text could not be read to invoke a private right of action permitting the plaintiff’s suit. Accordingly, the appellate court affirmed summary judgment against the plaintiff on these remaining two claims.

    Courts Appellate Fifth Circuit Debt Collection FDCPA CFPB Consent Order Statute of Limitations Time-Barred Debt

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  • CFPB denies debt collection law firm’s request to set aside CID

    Federal Issues

    On February 10, the CFPB denied a debt collection law firm’s request to modify or set aside a third-party Civil Investigative Demand (CID) issued to the firm by the Bureau while investigating possible violations of the FDCPA, CFPA, and the FCRA. As previously covered by InfoBytes, the Bureau also denied a request by a debt collection company to modify or set aside a CID, which sought information about the company’s business practices and its relationship with the firm in the same investigation. The firm’s petition asserted arguments largely based on the theory that the CFPB’s structure is unconstitutional, and that the Dodd-Frank Act provides the Bureau’s director with “overly broad executive authority.” Alternatively, the firm argued that if the CID is not set aside, it should be modified, stating, among other things, that the CID’s scope exceeds applicable statutes of limitation.

    As it did in the debt collection company’s request to set aside or modify the CID, the Bureau rejected the firm’s constitutionality argument, stating that “[t]he administrative process for petitioning to modify or set aside CIDs is not the proper forum for raising and adjudicating challenges to the constitutionality of provisions of the Bureau’s statute.” Additionally, the Bureau’s Decision and Order discounts the firm’s statute of limitations argument, contending that “the Bureau is not limited to gathering information only from the time period in which conduct may be actionable. Instead, what matters is whether the information is relevant to conduct for which liability can be lawfully imposed.” The Bureau also directed the firm to comply with the CID within ten days of the Order.

    Federal Issues Agency Rule-Making & Guidance CFPB Enforcement FDCPA CFPA FCRA Debt Collection Statute of Limitations Consumer Finance CIDs Single-Director Structure Dodd-Frank

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  • Indiana Supreme Court: Statute of limitations begins when lender exercises optional acceleration clause

    Courts

    On February 17, the Indiana Supreme Court reversed a trial court’s decision to dismiss a lender’s action as time-barred, holding that under the state’s two statutes of limitation, “a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates”—one of which “is when a lender exercises its option to accelerate before a note matures.” According to the opinion, the consumer executed a promissory note and mortgage in 2007 and stopped making payments in 2008. The note was subsequently transferred to the lender, and in 2016, the lender accelerated the debt and demanded payment in full. The lender sued to recover the note in 2017. The consumer argued that the claim was barred by a six-year statute of limitations for a cause of action upon a promissory note under Ind. Code Ann. § 34-11-2-9, and the trial court agreed, granting the consumer’s motion to dismiss. The Indiana Court of Appeals affirmed the decision, finding that the lender did not accelerate the debt within six years of the initial default, and clarified, on rehearing, that the relevant Uniform Commercial Code statute of limitations (Ind. Code Ann. § 26-1-3.1-118(a)) should also apply.

    The Indiana Supreme Court reversed the trial court’s ruling, determining, among other things, that the six-year statute of limitations did not start running until the lender exercised the optional acceleration clause in 2016, which was well within the applicable statutes of limitations. “We find that. . .under either applicable statute of limitations, [the lender’s] claim is timely,” the Court wrote. “We thus reverse the trial court’s order dismissing [the lender’s] complaint and remand.”

    Courts State Issues Statute of Limitations Debt Collection Acceleration Mortgage Lenders

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  • CFPB denies debt collector’s request to set aside CID

    Federal Issues

    On February 6, the CFPB released a Decision and Order denying a debt collection company’s (petitioner) request to set aside or modify a third-party Civil Investigative Demand (CID) issued by the Bureau, and directing the petitioner to provide all information required by the CID. The CID in dispute was issued to the petitioner by the CFPB in November and seeks documents and written responses pertaining to the petitioner’s business practices and its relationship with a New York-based debt collection law firm. The CID requests information regarding whether “debt collectors, furnishers, or associated persons” had, among other things, (i) violated the Consumer Financial Protection Act by ignoring warnings regarding debts resulting from identity theft “in a manner that was unfair, deceptive or abusive”; (ii) violated the FDCPA by disregarding cease-and-desist requests or by failing to provide required notices or making false or misleading statements; or (iii) violated the FCRA by “fail[ing] to correct and update furnished information, or fail[ing] to maintain reasonable policies and procedures.”

    In its petition to set aside or modify the CID, the petitioner set out four primary arguments: (i) the structure of the CFPB is unconstitutional, and it therefore “lacks authority to proceed with enforcement activity”; (ii) the CID improperly seeks attorney-client privileged information; (iii) the CID is “overly broad,” does not apply to the petitioner, and does not sufficiently provide the “nature of the conduct under investigation and the applicable provisions of law”; and (iv) the CID improperly seeks information beyond the applicable statute of limitations.

    The Bureau’s denial of the petitioner’s request addresses each of the petitioner’s arguments. Regarding the constitutionality of the CFPB’s structure, the order asserts that “the administrative process set out in the [B]ureau’s statute and regulations for petitioning to modify or set aside a CID is not the proper forum for raising and adjudicating challenges to the constitutionality of the [B]ureau’s statute.” In response to the petitioner’s attorney-client privilege argument, the order states that the petitioner “does not ask…to modify the CID to avoid seeking privileged information—it only asks that the CID be quashed in its entirety.” The Bureau states that because the petitioner makes a “blanket assertion” of attorney-client privilege rather than providing the required privilege log in order to properly claim privilege over materials requested in the CID before filing its petition, the petitioner’s argument is “procedurally improper” and does not show that the “CID should be set aside on these grounds.” To the petitioner’s lack of specificity argument, the order states that the CID “sets forth in detail both the conduct under investigation and applicable laws,” adding that there is no requirement that the Bureau disclose the targets of its “ongoing and confidential law-enforcement investigations.” The order also rejects the petitioner’s statute of limitations argument, explaining that the Bureau is not limited to the three years preceding the CID, but “instead what matters is whether the information is relevant to conduct for which liability can be lawfully imposed.”

    Federal Issues CFPB Enforcement Consumer Finance CIDs Debt Collection Single-Director Structure Statute of Limitations Dodd-Frank FDCPA FCRA

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  • 3rd Circuit: Each premium payment could violate RESPA’s prohibition on kickbacks

    Courts

    On June 19, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a RESPA class action against a national bank, concluding the suit was not timely filed. According to the opinion, two consumers took out mortgages with the bank in 2005 and 2006. In 2011, the consumers were part of the putative class in a separate class action, alleging the bank violated RESPA by referring homeowners to mortgage insurers that then obtained reinsurance from a subsidiary of the bank, which the consumers claimed amounted to a kickback. After the class action was dismissed as untimely in 2013 and while it was pending appeal, the consumers filed a new class action as the named plaintiffs, which alleged the same violation of RESPA. The consumers argued that, while RESPA has a one-year statute of limitations, (i) RESPA makes each kickback a separately accruing wrong and that the insurers paid a kickback for each insurance premium payment, therefore, the suit is timely up to one year after the last premium payment and kickback; and  (ii) the filing of the first class action tolled the limitation period for their claims and because the class action continued until November 2013, tolling extended their limitations period until then.

    The appeals court upheld the district court’s dismissal of the action, agreeing with the consumers’ separate-accrual theory, but noting that the consumers paid no premiums in the year before they filed their complaint, so the limitations period had expired before the consumers filed the new action. Specifically, the appellate court rejected the bank’s argument that RESPA’s statute of limitations runs only from the mortgage closing, not from each later premium payment, holding that under RESPA the limitations period accrues separately for each kickback, stating “[s]o a party violates the Act anew each time it takes the discrete act of giving or receiving a kickback under an agreement to make referrals.”

    As for whether the 2011 class action tolled the consumers’ claims, the appellate court cited the Supreme Court’s 2018 opinion in China Agritech, Inc. v. Resh, noting that the Court in that case held that such tolling is only available for individual claims, not class claims. The appellate court rejected the consumers’ arguments that China Agritech does not apply to new class claims filed before the first action has officially ended, stating, “[t]olling new class actions filed while the first one was pending would encourage more plaintiffs to seek second bites at the apple.” Because the consumers’ action was not timely filed, the appellate court affirmed the district court’s dismissal.

     

    Courts RESPA Appellate Third Circuit Statute of Limitations Kickback Class Action

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