Mortgage Banking Update: 10th Circuit: Law Firm Not Required To Flag Erroneous Credit Reports in Foreclosure Proceeding

by Ballard Spahr LLP
Contact

A law firm hired to foreclose on a property was not required under the Fair Debt Collection Practices Act (FDCPA) to inform a credit reporting agency of erroneously negative credit reports on the borrower, even if the firm was aware of the mistake, the U.S. Court of Appeals for the 10th Circuit held in a recent ruling.

In Llewellyn v. Allstate Home Loans, et al., the borrower, when refinancing his loan, failed to inform the closing agent that the servicing rights to the loan had been transferred. Accordingly, the closing agent wired payoff funds to the original servicer, and the borrower stopped making payments. 

When the second servicer did not receive the borrower's monthly payments, it made negative credit reports to a credit reporting agency and hired a law firm to initiate foreclosure proceedings. Eventually, the law firm and second servicer determined what had occurred, and the original servicer forwarded the payoff funds to the second servicer. The second servicer and the law firm, however, did not take any action to remove the negative credit reports for several more months.

The borrower subsequently filed an action containing various allegations, including that the second servicer and law firm violated the FDCPA by failing to reverse the credit reports despite the second servicer's acknowledgment that the reports were made in error. The borrower also alleged that the second servicer willfully violated the Fair Credit Reporting Act (FCRA).

The 10th Circuit partially reversed the district court's grant of summary judgment in favor of the second servicer on the borrower's FCRA claims but affirmed its grant of summary judgment in favor of the second servicer and the law firm on the FDCPA claims. Most significantly, the court held that the law firm's failure to notify the credit reporting agency that the debt was disputed or take steps to reverse the negative credit reports did not constitute an FDCPA violation. Although the law firm was aware that the negative credit reports had been made in error, it had never reported the debt to a credit reporting agency, the court found. Concurring with the Eighth Circuit's 2008 opinion in Wilhelm v. Credico, Inc., the court concluded that the firm was neither obligated to inform the agency of the dispute nor under any affirmative duty to reverse the negative reports.

The court also dispensed with the borrower's FDCPA claims against the second servicer. It held that, because the borrower's loan was not in default at the time it was obtained by the second servicer, the second servicer was not a "debt collector" within the meaning of the FDCPA.

On the FCRA claims, the second servicer argued that the borrower did not provide sufficient evidence of damages to survive summary judgment. The 10th Circuit disagreed, holding that although the borrower failed to provide sufficient evidence to support his claims of economic damages, his own affidavit regarding his deteriorated health and depression was sufficient to create a genuine dispute as to whether the servicer's actions caused him emotional damages. The court further held that summary judgment was not appropriate on whether an FCRA violation had occurred. The 10th Circuit found there was a "genuine dispute of fact" as to whether the servicer's reporting of the borrower's non-payment without also reporting the underlying dispute created a "materially misleading impression" in violation of FCRA.

The 10th Circuit did agree with the district court's grant of summary judgment in favor of the second servicer on the plaintiff's claim that the servicer's alleged FCRA violation was "willful." According to the 10th Circuit, the servicer's delay in removing the negative credit reports did not rise to the level of an "intentional violation" or a violation in "reckless disregard of its [FCRA] duties" as required for recovery of statutory or punitive damages by the FCRA's willful violation provision.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.