debt collection

Mortgage Servicer Disregarded Loan Modification Agreement and Is Liable for Debt Collection Abuses, Federal Court Finds

The United States District Court for the Western District of Michigan issued an important published opinion early this month in the case of Macholtz v. Carrington Mortgage Services, LLC, finding, after a “journey through a thick summary judgment record” that detailed a “15-year struggle between plaintiff and a series of lenders,” that the mortgage servicer defendant’s refusal to acknowledge a loan modification agreed to by its predecessor made it liable to the consumer plaintiff under various state and federal consumer protection laws. The lawsuit, filed in early 2019 by Westbrook Law PLLC in Grand Rapids, Michigan, seeks damages for the plaintiff and to unwind a foreclosure sale.

The lawsuit challenged the conduct of the mortgage servicer, Carrington Mortgage Services, LLC, and the bank it worked for, Wilmington Savings Fund Society FSB. Carrington qualified as a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”) because it began servicing the mortgage after the predecessor servicer, CitiMortgage, had declared a default. CitiMortgage had also previously entered into a modification agreement with the plaintiff, but failed to ever “on-board” the modification or acknowledge its existence. Eventually, after demanding to be paid huge sums of money that were not justified under the modified terms of the loan, Carrington and Wilmington foreclosed on the plaintiff’s Berrien County home, which he had owned for 22 years.

The lawsuit alleged violations of the Real Estate Settlement Procedures Act (“RESPA”); Truth in Lending Act (“TILA”); FDCPA, Michigan Mortgage Brokers, Lenders and Servicers Licensing Act (“MBLSLA”); Michigan Regulation of Collection Practices Act (“MRCPA”), and common-law wrongful foreclosure and breach of contract. The court found violations of TILA, FDCPA, MBLSLA, and MRCPA on the part of Carrington and Wilmington and set the case for trial regarding damages and other remedies.

Consumer advocates in Michigan have often lamented the erosion of protections for homeowners under state and federal law over the last 20 years. It is true that consumers in Michigan have fewer protections than they did during the 1980s and 1990s. However, while holding mortgage servicers and banks accountable remains challenging, the Macholtz opinion shows that the remaining federal and state protections can be potent tools for redressing consumer abuses.

TJW

Class Action Against Michigan Collection Attorneys and Debt Buyers Reinstated by United States Court of Appeals for the Sixth Circuit

Today the United States Court of Appeals for the Sixth Circuit released its opinion in VanderKodde v. Mary Jane M. Elliott, P.C., a lawsuit brought by Westbrook Law PLLC in 2017 alleging widespread unlawful practices by prominent Michigan collection law firms Mary Jane M. Elliott, P.C. and Berndt & Associates, P.C., along with their clients, large debt buyers Midland Funding, LLC and LVNV Funding, LLC. The lawsuit alleges that the defendants routinely added unlawful and grossly excessive amounts of interest to judgments they obtained against Michigan consumers in state district courts, and that this practice violated the federal Fair Debt Collection Practices Act.

We believe tens of thousands of Michigan consumers have been affected by this practice and that millions of dollars may have been unlawfully collected from them.

At the trial court level, the defendants raised a procedural defense based on the “Rooker-Feldman doctrine,” which disallows federal district courts from acting as appeals courts for state-court judgments. The district court agreed and dismissed the lawsuit. We appealed the dismissal to the Sixth Circuit.

By its opinion today, the Sixth Circuit reversed the dismissal of the lawsuit, effectively reinstating the case and allowing it to proceed. The court emphasized that the plaintiffs in our case were complaining of unlawful conduct of the defendants independent from any state-court judgment: their calculation of judgment interest at an excessive rate and their subsequent attempts to collect excessive debt amounts through garnishments.

The VanderKodde case reflects the importance of class action litigation where thousands of consumers have been harmed by a routine practice by a debt collector or financial institution. While many individual class members may have suffered only small harms, the total amount unlawfully collected by the defendants through this practice may have been enormous. We intend through the VanderKodde lawsuit to pursue justice and compensation for all those harmed.

TJW

New Class Action Lawsuit Against Mortgage Servicer Real Time Resolutions Claims Threats to Harm Credit Ratings Broke the Law

Mortgage loan servicers typically collect and process payments for mortgage loans on behalf of the owners of those loans. If your loan statements come from Ocwen, Nationstar (now using the quizzical alias “Mr. Cooper”), or Seterus, just to name a few, you are dealing with a servicer. Real Time Resolutions, Inc., another servicer, is the latest target of a consumer class-action lawsuit filed by Westbrook Law PLLC in the United States District Court for the Western District of Michigan, Bushouse v. Real Time Resolutions, Inc.

The new lawsuit alleges that Real Time violated federal and state law through its routine practice of threatening consumers with reporting obsolete, negative credit information about them. Whereas the law does not allow credit reporting of most negative items that are past seven years old, 15 U.S.C. § 1691c(a), the complaint alleges that Real Time continues to threaten negative reporting well beyond the seven-year mark. This practice, which could frighten consumers into paying obsolete debts they no longer have any legal obligation to pay, is alleged to violate the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e; the Michigan Occupational Code, M.C.L § 339.915; and the Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act, M.C.L. § 445.1672. The plaintiff seeks damages for herself and other Michigan citizens who received the threatening communications.

Our expertise in credit reporting law–i.e., the federal Fair Credit Reporting Act–and consumer collection law informed this lawsuit and many others on behalf of Michigan consumers. If you have concerns about whether a practice by a debt collector or mortgage servicer is fair or lawful, contact us for a consultation.

TJW

Police Department Changes Repossession Policy in Response to Civil Rights Lawsuit Brought by Westbrook Law PLLC

When a repossession agent unexpectedly arrived at our client’s home, the client physically intervened to prevent the unlawful repossession from taking place. Then the agent called the police. When City of Wyoming officers responded to the call, they prevented our client from intervening further and told him and the agent that the agent was free to complete the repossession.

Westbrook Law PLLC brought suit in January of 2018 on behalf of the client, alleging violations of 42 U.S.C. § 1983 and the Fourth and Fourteenth Amendments by the city and the responding officers. The case, captioned Patterson v. City of Wyoming, ended in a settlement in September of 2018, with the city paying damages as well as implementing a new policy for responding to similar calls.

Due process requires that state actors such as police do not assist with private repossessions without a court order where the vehicle owner disputes the lien holder’s right to repossess the vehicle. This is especially true when the repossession attempt causes a breach of the peace and thereby becomes unlawful under Michigan law. Such a dispute is a civil matter to be resolved in a lawsuit, not a criminal matter, and responding police officers are required to do no more than is necessary to maintain public safety.

If you have had a similar experience with police officers assisting in a repossession, contact us.

TJW

House Financial Services Committee Evaluates Bill to Exempt Collection Lawyers from Fair Debt Collection Practices Act/Westbrook Law of Grand Rapids, Michigan

In December, House Bill H.R. 4550, entitled “Practice of Law Technical Clarification Act of 2017,” was introduced by sponsors Vincente Gonzalez (D-Tex.) and Alexander Mooney (R-W. Va.). If passed, the bill would dramatically limit the legal protections to consumers currently provided by the federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692o (“FDCPA”), by completely exempting collection lawyers from liability. Under current law, collection lawyers are treated the same as other debt collectors, and prohibited from engaging in abusive, misleading, or unfair collection practices. See Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573 (2010). Westbrook Law PLLC has filed several lawsuits against collection law firms that violated the FDCPA. Those claims would not exist under the law as amended by H.R. 4550, and there is little question that the amendment would enable new and intensified abuses by collection law firms to go unchecked.

H.R. 4550 is currently being evaluated by the House Financial Services Committee, which may approve or kill the bill. Westbrook Law PLLC is actively engaging with committee members to ensure they are aware of the anti-consumer nature of this bill and to request that they do their part to prevent it from becoming law.

TJW

Supreme Court Releases Consumer-Unfriendly Opinion in Santander – What Does It Mean?/Westbrook Law of Grand Rapids, Michigan

Yesterday, the U.S. Supreme Court released an opinion highly anticipated by consumer lawyers as well as the debt collection industry, in the case of Henson v. Santander Consumer USA, Inc. This case dealt with the question of whether a purchaser of defaulted debts, which then attempts to collect those debts from consumers, counts as a “debt collector” that is subject to strict consumer protections provided in the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”).

To grasp the potential impact of this case, one needs to understand the structure of the consumer debt collection industry as it exists today:

The first step is origination, when the consumer first incurs a debt to a creditor such as a bank, credit card issuer, other lender, wireless provider, or cable company.

When the consumer defaults on a debt–usually by failing to pay–one of two things may happen: (1) the original creditor may hire a third-party debt collection company to attempt to collect the debt, generally through telephone calls and collection letters; or (2) the original creditor may attempt to collect the debt itself for some period of time.

Often, once the debt becomes sufficiently aged, the creditor sells, or assigns, the debt to a debt buyer. The debt buyer pays the creditor only a fraction of the face value of the debt, then attempts to recover as much of the debt as possible from the consumer by various means, often including telephone calls and collection letters.

The final stage in the process is a lawsuit filed by collection attorneys acting on behalf of the debt buyer. Most of these lawsuits are not contested, and result in default judgments that are slowly collected through wage, bank account, and tax refund garnishments.

It has long been settled law that, under the FDCPA, third-party debt collection companies and collection attorneys ARE “debt collectors.” Most federal courts found that debt buyers were “debt collectors” as well, including the United States Court of Appeals for the Sixth Circuit, which establishes precedent for federal courts in Michigan. Generally, circuit precedent found that creditors collecting their own debts could NOT be “debt collectors” unless a rare exception applied.

All of this matters for one basic reason: the FDCPA restricts what “debt collectors” are allowed to do, and creates powerful remedies for consumers when they do not comply with the FDCPA. The FDCPA creates various protections for consumers; for example, it requires debt collectors to identify themselves as debt collectors in communications to consumers, disallows certain conduct in collection lawsuits, outlaws attempts to collect debts no longer owed, limits consumer harassment by telephone, and disallows unfair and fraudulent conduct in connection with debt collection. Consumers harmed by violations of the FDCPA are entitled to sue, and can recover a statutory penalty as well as their attorney fees.

In yesterday’s Santander decision, the Supreme Court unanimously held that debt buyers are not automatically “debt collectors” subject to the FDCPA. According to the opinion, penned by newest Justice Neil Gorsuch, this is so because debt buyers are attempting to collect a debt that is owed to them, and thus are creditors, even though they are not the original creditors.

Taken in isolation, the Santander holding might seem catastrophic for consumers besieged by collection attempts from debt buyers (including such large players as Midland Funding, LVNV Funding, Portfolio Recovery Associates, and others), because the protections of the FDCPA would be unavailable. This would enable debt buyers to use, with impunity, the same harassing and unfair collection methods that “debt collectors” are not allowed to use under the FDCPA. It is true that the Santander decision is beneficial to some debt buyers at the expense of consumers; however, its impact is limited. Justice Gorsuch carefully points out in the opinion that the court’s decision does NOT mean that debt buyers are NEVER “debt collectors.” Indeed, the text of the FDCPA appears clear that debt buyers ARE “debt collectors” if their “principal purpose … is the collection of any debts.” 15 U.S.C. § 1692a(6). With respect to the largest buyers of defaulted credit card debt–i.e., Midland Funding, LVNV, and PRA–an experienced consumer lawyer should easily be able to prove that their “principal purpose” is debt collection; and they are therefore “debt collectors” subject to FDCPA restrictions.

While the Santander decision does not make the consumer advocate’s job easier, and is likely to spur pernicious innovations in the debt buying and debt collection industry, it is hardly the death knell for the FDCPA. Consumer advocates and watchdogs, including us at Westbrook Law PLLC, will continue to find ways to keep abuses in check.

TJW

Collectors Still Pursuing Debt after Bankruptcy Discharge? It’s Illegal./Westbrook Law of Grand Rapids, Michigan

Each year, hundreds of thousands of individuals with overwhelming debts file for Chapter 7 or Chapter 13 bankruptcy in order to regain their financial freedom. The usual goal of bankruptcy is to have one’s debts “discharged,” or declared legally unenforceable and effectively nullified. This is intended to allow the debtor a “fresh start” to their financial affairs.

But a discharge of debts in bankruptcy does not always stop debt collectors, who may continue to contact the debtor by phone or letter, or even file legal proceedings, after a debt has been discharged. These post-discharge collection attempts rob the debtor of the “fresh start” he or she fought for in bankruptcy, and are often unlawful, violating various state and federal laws designed to protect consumers from abusive debt collection tactics.

If you are still being chased by debt collectors to pay a debt that was discharged in bankruptcy, Westbrook Law PLLC may be able to make the collection efforts stop, punish the debt collectors for violating the law, and get monetary compensation for you. Contact us for more information or a free consultation.

If you have not filed for bankruptcy but wonder if it may be right for you, contact us for a referral to a qualified bankruptcy law firm.

TJW

Certification Granted in FDCPA Class Action Babbitt v. ClearSpring Loan Services, Inc./Westbrook Law of Grand Rapids, Michigan

Today, the United States District Court for the Western District of Michigan issued an order granting class certification in a Fair Debt Collection Practices Act (“FDCPA”) case against default mortgage servicer ClearSpring Loan Services, Inc. Westbrook Law PLLC member Theodore J. Westbrook, along with veteran consumer lawyer Phillip C. Rogers, were appointed class counsel.

The case, filed by Mr. Westbrook in late 2015, alleges that ClearSpring engaged in a pattern and practice of violating the FDCPA through failing to disclose on its monthly loan statements that ClearSpring was a debt collector. The FDCPA, 15 U.S.C. Section 1692e(11), specifically requires all debt collectors to make such a disclosure in each communication with a debtor, in an effort to minimize consumer confusion. As a default mortgage servicer–a company that obtains the right to collect payments after the loan is delinquent or otherwise in default–ClearSpring is a debt collector that must comply with the FDCPA.

The specialized default servicing industry has been growing along with large lenders’ eagerness to offload non-performing loans. With it, the likelihood of servicers failing to understand or comply with debt collection laws may also be on the rise. As more class actions are certified, industry players will be forced to bring their practices in line with the strict requirements of the FDCPA.

Debt Collection Lawsuits May Break the Law/Westbrook Law of Grand Rapids, Michigan

Huge numbers of lawsuits are filed by debt collectors and debt buyers in Michigan’s district courts every day. Some of the larger debt buyers may file hundreds of lawsuits per year in a single district court. These are relatively small-dollar cases, seeking anywhere from $100 up to $5,000 or more, typically on past due credit card accounts that have been written off and sold by the original creditor (in the case of a legitimate debt), to a debt buyer, and then possibly re-sold to a string of other debt buyers.

Many people who have been sued by debt collectors do not know what to do. The debt may seem legitimate, or may even be legitimate. Frequently these defendants simply do not contest the lawsuit, a default judgment is entered against them, and ultimately their bank accounts or wages are garnished to pay the debt collector. The problem is that the plaintiff–the debt collector who filed the lawsuit–might have broken the law when it filed the lawsuit, or might not even have had the right to any payment at all.

The Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., prohibits debt collectors from making false or misleading statements or using unfair methods to collect consumer debts. This includes statements made and methods used in lawsuits to collect debts. If the plaintiff claims amounts are owed that are not actually owed, that is unlawful under 15 U.S.C. § 1692e. If the plaintiff has filed a time-barred claim–which is typically the case if no payments have been made on the debt in six or more years–that is also a violation. Debt collectors’ legal complaints frequently contain deceptive and misleading statements that could give rise to defenses to the debt, as well as counterclaims for monetary damages.

The following common practices among debt buyers are all grounds for relief under the FDCPA:

Misrepresenting the original creditor to whom the debt was owed;
Seeking more money than what is actually owed;
Including non-recoverable fees and costs in the amount sought in the lawsuit;
Improperly including certain fees and costs in garnishments;
Misrepresenting that the complaint was prepared by an attorney of law firm, when in fact it was prepared by a non-lawyer;
Providing false or misleading contact information;
Including false, misleading or fabricated documentary evidence as support for the complaint.

Many consumers sued by buyers of old defaulted debt feel they cannot afford an attorney to defend their case. This is not necessarily true, particularly when a consumer lawyer finds that there is a viable counterclaim against the debt collector under the FDCPA. This is because, as a remedial consumer protection statute, the FDCPA provides for the payment of attorney fees by the debt collector if a violation is proven.

If you have been sued by a debt collector, contact us for a consultation free of charge.