JOSEPH F. BATAILLON, District Judge.
This matter is before the court on a motion to dismiss filed by the defendant, Select Portfolio Servicing, Inc. ("SPS"), Filing No. 6. This is a purported class action for violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA"). The court has jurisdiction under 28 U.S.C. §§ 1692k(d), 1331, and 1337.
In her complaint, the plaintiff, on behalf of herself and others similarly situated, seeks actual and statutory damages against the defendant, an alleged debt collector, "arising from the routine practice of sending collection letters to consumers, like the those sent to Ms. Donnelly-Tovar which inter alia failed to provide the validation notice pursuant to 15 U.S.C. § 1692g(a), the debt collection warning pursuant to 15 U.S.C. § 1692e(11), misrepresented the character, amount, or status of the debt in violation of 15 U.S.C. § 1692e(2)(A) and e(10), and attempted to collect amounts not authorized by contract or law which had been discharged in bankruptcy in violation of 15 U.S.C. § 1692f(1)." Filing No. 1, Complaint at 1. Ms. Donnelly-Tovar alleges she incurred a mortgage obligation with First Franklin Loan Services ("First Franklin") for the purchase of real property. Id. at 2. She later came into financial difficulty, falling into arrears on the mortgage. Id. She alleges she filed a Chapter 7 bankruptcy allegedly listing First Franklin as a secured creditor and First Franklin was notified of the bankruptcy filing. Id. at 2-3. She further alleges her obligations were discharged in bankruptcy court on May 10, 2020 and she abandoned her interest in the property. Id. at 3; see also In re Donnelly-Tovar, No. 10-80219 (Bankr.D.Neb. May 10, 2010). She also alleges she has not reaffirmed or renewed the discharged mortgage obligation with First Franklin or any other entity. Id. Further, she alleges that the defendant obtained her obligation to First Franklin after the debt had fallen into default. Id. at 3.
In the letter quoted in and attached to the complaint, SPS proposes that the payment will effect "a full and complete satisfaction of the lien on the property," noting that the "total amount secured by the lien is $59,729.31." Id. at 3-4; Ex. A, Letter at 1. Further, the letter sets out detailed payment instructions stating that "[p]ayment must be in the form of certified funds according to the attached instructions page for certified funds remittance" and that "[c]ertified funds may be sent in the form of a bank wire, cashier's bank check, attorney trust account check, title or escrow company check, or Western Union Quick Collect." Id. at 1-2. The letter states "[t]his information is for informational purposes only and is not considered an attempt to collect a debt." Id. at 1. The letter identifies SPS, however, as a collection agency licensed in Minnesota, North Carolina, and Tennessee. Id.
SPS moves to dismiss under Fed. R.Civ.P. 12(b)(6). It argues that the plaintiff's complaint does not state a claim for relief because the FDCPA does not apply "to a secured creditor's enforcement of its lien on real property when the underlying debt was extinguished and the creditor does not simultaneously attempt to collect that debt." Filing No. 7, Brief at 1. It argues that SPS had the right to enforce the lien and contends that the letter accurately explained to the plaintiff that although her "personal liability on the note may be discharged, dismissed, or subject to an automatic stay, the terms of the mortgage remain in effect. The owner of the mortgage, as lien holder, continues to have an enforceable lien on the real property.'" Id. at 2. It cites SPS's "repeated assurances in the Letter that it was not demanding payment, that it was not attempting to collect a debt, and that Donnelly-Tovar no longer had personal liability for the mortgage obligation," as support for its position that it "was not attempting to collect on an `obligation or alleged obligation of a consumer to pay money,' but was instead offering options for the settlement of an in rem right to enforce a security interest." Id. at 3-4. SPS argues that "security interest enforcement activities do not constitute attempts to collect a `debt' as defined by the FDCPA." Id. at 4. The defendant argues that the FDCPA is "simply not implicated" because "there was no simultaneous demand for payment, no suggestion that payment was mandatory, and no implication that Donnelly-Tovar had personal financial responsibility." Filing No. 18, Reply Brief at 6. It states that the letter "does not so much as hint that Donnelly-Tovar was obligated to pay anyone," adding that she "was free to act, or not act, as she desired." Reply Brief at 10.
Under the Federal Rules, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The rules require a "`showing,' rather than a blanket assertion, of entitlement to relief." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 n. 3, 127 S.Ct. 1955, 167
The factual allegations of a complaint are assumed true and construed in favor of the plaintiff, "even if it strikes a savvy judge that actual proof of those facts is improbable and `that a recovery is very remote and unlikely.'" Id. (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). "On the assumption that all the allegations in the complaint are true (even if doubtful in fact)," the allegations in the complaint must "raise a right to relief above the speculative level." Twombly, 550 U.S. at 555-56, 127 S.Ct. 1955. In other words, the complaint must plead "enough facts to state a claim for relief that is plausible on its face." Id. at 547, 127 S.Ct. 1955. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (stating that the plausibility standard does not require a probability, but asks for more than a sheer possibility that a defendant has acted unlawfully.).
Thus, the court must find "enough factual matter (taken as true) to suggest" that "discovery will reveal evidence" of the elements of the claim. Twombly, 550 U.S. at 558, 556, 127 S.Ct. 1955; Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (explaining that something beyond a faint hope that the discovery process might lead eventually to some plausible cause of action must be alleged). When the allegations in a complaint, however true, could not raise a claim of entitlement to relief, the complaint should be dismissed for failure to set a claim under Fed.R.Civ.P. 12(b)(6). Twombly, 550 U.S. at 558, 127 S.Ct. 1955; Iqbal, 556 U.S. at 679, 129 S.Ct. 1937.
"A promissory note is a contract evidencing a debt and specifying terms under which one party will pay money to another." Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216 (11th Cir.2012). "By contrast, a security interest is not a promise to pay a debt; it is an interest in some collateral that a lender can take if a debtor does not fulfill a payment obligation." Id. A mortgage is a type of security interest with real property as the collateral. See Black's Law Dictionary 1031 (8th ed.2004). Generally, a mortgage also involves a promissory note. See, e.g., Reese, 678 F.3d at 1216.
A mortgagor's Chapter 7 discharge eliminates in personam liability for the promissory note given to obtain a mortgage loan. 11 U.S.C. § 524(a). A mortgagee's security interest in the property survives the bankruptcy proceedings notwithstanding the discharge of the mortgagor's personal liability. See Johnson v. Home State Bank, 501 U.S. 78, 82-83, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991) (citing 11 U.S.C. § 522(c)); see also Burns v. Burns, 233 Iowa 1092, 11 N.W.2d 461, 463 (1943) ("Under the laws of [Iowa] a mortgage . . . is simply a lien . . . for the purpose of securing the indebtedness.").
The FDCPA was enacted in 1977 for the purpose of eliminating abusive debt collection practices by debt collectors, among other things. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, 575-77, 130 S.Ct. 1605, 1608, 176 L.Ed.2d 519 (2010); Dunham v. Portfolio Recovery Associates, LLC, 663 F.3d 997, 1000 (8th Cir.2011). It regulates where and when a debt collector may communicate with a consumer. See 15 U.S.C. § 1692c. The Act "prohibits, inter alia, `the use or threat of violence, obscene language, publication of shame lists, and harassing or anonymous telephone calls.'" Quinn v. Ocwen Fed. Bank FSB, 470 F.3d 1240, 1246 (8th Cir.2006) (quoting 15 U.S.C. § 1692d). Under the FDCPA, debt collectors cannot use false, deceptive, misleading, unfair or unconscionable means to collect or attempt to collect a debt. 15 U.S.C. §§ 1692d & f. An example of this type of prohibited conduct is "[t]he collection of any amount . . . unless such amount is expressly authorized by the agreement creating the debt or permitted by law." 15 U.S.C. § 1692f(1). "`Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property' if, e.g., `there is no present right to possession of the property claimed as collateral through an enforceable security interest'" is also listed as a prohibited activity under the Act. See Glazer v. Chase Home Finance LLC, 704 F.3d 453, 461 (6th Cir.2013) (quoting 15 U.S.C. § 1692f(6)(A)). Similarly, the FDCPA prohibits "[t]he false representation of . . . the character, amount, or legal status of any debt." 15 U.S.C. § 1692e(2)(A).
In evaluating whether a debt collection letter is false, misleading or deceptive, the letter must be viewed through the eyes of the unsophisticated consumer. Duffy v. Landberg, 215 F.3d 871, 873 (8th Cir.2000). The unsophisticated consumer standard is "designed to protect consumers of below average sophistication or intelligence without having the standard tied to `the very last rung on the sophistication ladder.'" Id. (quoting Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1236 (5th Cir. 1997) and Gammon v. GC Servs. Ltd. Partnership, 27 F.3d 1254, 1257 (7th Cir.1994)). "This standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collections letters." Id. at 874-75; see also Volden v. Innovative Financial Systems, Inc., 440 F.3d 947, 955 (8th Cir. 2006).
The FDCPA mandates that, as part of noticing a debt, a "debt collector" must "send the consumer a written notice containing"—along with other information—"the name of the creditor to whom the debt is owed[.]" 15 U.S.C. § 1692g(a)(2); see Bourff v. Rubin Lublin, LLC, 674 F.3d 1238, 1241 (11th Cir.2012) (noting that the identity of the creditor in these matters is a serious matter). Under the FDCPA, "creditor" is defined as "any person who offers or extends credit creating a debt or to whom a debt is owed, but such term does not include any person to the extent that he receives an assignment or transfer of a debt in default solely for the purpose of facilitating collection of such debt for another." 15 U.S.C. § 1692a(4). The "`distinction between creditors and debt collectors is fundamental to the FDCPA,'" because the Act "`does not regulate creditors' activities at all.'" Schmitt v. FMA Alliance, 398 F.3d 995, 998 (8th Cir.2005) (quoting Randolph v. IMBS, Inc., 368 F.3d 726, 729 (7th Cir.2004)).
To be held directly liable for violation of the FDCPA, a defendant
"The definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any nonoriginating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition." Bridge v. Ocwen Federal Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012) (finding error in the district court's dismissal of a complaint against mortgage lender, assignee, and servicer for FDCPA violations). "[A] debt holder or servicer is a debt collector when it engages in collection activities on a debt that is not, as it turns out, actually owed." Id. (noting "[t]his stands to reason since the pursuit of collection activities presupposes that the collector alleges or asserts that the subject of those activities is obligated.").
The FDCPA broadly defines the word "debt" as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." 15 U.S.C. § 1692a(5); see Glazer, 704 F.3d at 461 (noting that "[t]he focus on the underlying transaction indicates that whether an obligation is a `debt' depends not on whether the obligation is secured, but rather upon the purpose for which it was incurred.") "A home loan is a `debt' even if it is secured." Id.; see Reese, 678 F.3d at 1217-18; Maynard v. Cannon, 401 Fed.Appx. 389, 394 (10th Cir.2010); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir.2006).
Debt collection is performed through either "communication," "conduct," or "means," suggesting a "broad view of what the Act considers collection." Glazer, 704 F.3d at 461. If a purpose of an activity taken in relation to a debt is to "obtain payment" of the debt, the activity is properly considered debt collection. Id. A communication to collect a debt is one that either demands a payment, or implies that something is owed. Bailey v. Security Nat. Servicing Corp., 154 F.3d 384, 389 (7th Cir. 1998). There is no categorical rule that only an explicit demand for payment will qualify as a communication made in connection with the collection of a debt. Gburek, 614 F.3d 380, 385 (7th Cir.2010) (noting that "the absence of a demand for payment is just one of several factors that come into play in the commonsense inquiry of whether a communication from a debt collector is made in connection with the collection of any debt"); Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir.2011). The nature of the parties' relationship is another factor to consider, as is the purpose of the communication. Id. at 385; Grden, 643 F.3d at 173 (stating that "for a communication to be in connection with the collection of a debt, an animating
The FDCPA draws a distinction between general debt collection and enforcement of a security interest. Kaltenbach v. Richards, 464 F.3d 524, 527 n. 3 (5th Cir.2006). "A person whose business has the principal purpose of enforcing security interests but who does not otherwise satisfy the definition of a debt collector is subject only to § 1692f(6) [which prohibits certain non-judicial repossession abuses]." Id. at 527. However, "the entire FDCPA can apply to a party whose principal business is enforcing security interests but who nevertheless fits § 1692a(6)'s general definition of a debt collector." Id. at 528; see alsoGlazer, 704 F.3d at 464 (noting that "[s]ection 1692f(6) thus recognizes that there are people who engage in the business of repossessing property, whose business does not primarily involve communicating with debtors in an effort to secure payment of debts."); Wilson, 443 F.3d at 378 (holding § 1692f(6) "applies to those whose only role in the debt collection process is the enforcement of a security interest."); Montgomery v. Huntington Bank, 346 F.3d 693, 700 (6th Cir.2003) (agreeing that "those who enforce security interests, such as repossession agencies, fall outside the ambit of the FDCPA," except for the purposes of § 1692f(6)); Nadalin v. Auto. Recovery Bureau, Inc., 169 F.3d 1084, 1085 (7th Cir.1999) (noting that "repossessors" must comply with § 1692f(6)); James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995) (noting that "a few provisions of the Act subject repossession companies to potential liability when they act in the enforcement of others' security interests").
Several Circuit Courts of Appeal have recently applied the FDCPA to activities involving mortgage foreclosures. See Glazer, 704 F.3d at 459-62 (mortgage foreclosure is debt collection under the Act); Reese, 678 F.3d at 1218 (rejecting the distinction between attempts to collect a debt and purported attempts to enforce a security interest); Birster v. American Home Mortg. Servicing, Inc., 481 Fed.Appx. 579, 583 (11th Cir.2012) (holding that a mortgage loan servicer's alleged conduct supported conclusion that it engaged in debt collection activity in addition to its activity to enforce security interest); Bridge v. Ocwen Federal Bank, FSB, 681 F.3d 355, 362 (6th Cir.2012) (holding that a mortgage loan servicer can be either a creditor or a debt collector but cannot "define itself out of either category," and was a debt collector in that case); Wilson, 443 F.3d at 376 (holding that the FDCPA may apply to efforts to recoup a debt through foreclosure, stating that to hold otherwise "would create an enormous loophole in the Act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt"); Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227, 235 (3d Cir.2005) (stating that "the text of the FDCPA evidences a Congressional intent to extend the protection of the Act to consumer defendants in suits
Reese, 678 F.3d at 1217-18; see also Wilson, 443 F.3d at 376 (holding that the "`debt' remained a `debt' even after foreclosure proceedings commenced" and that foreclosure lawyers may come under the general definition of "debt collector" subject to all the provisions of the FDCPA as they most frequently settle the foreclosure with a payment of money from a refinancing, or payoff from the sale of the house); see also Kaltenbach v. Richards, 464 F.3d 524 (5th Cir.2006) (same); Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227, 234 (3d Cir.2005) (holding that a collection letter's threat to execute a lien if payment is not made on a debt "does not change [the law firm's] communications to the [debtors] into something other than an effort to collect that debt" reasoning that the underlying mortgage was a qualifying transaction involving the loan of money); Bourff, 674 F.3d at 1241 (holding that a letter requesting payment on a promissory note secured by a mortgage is "an attempt at debt collection" within the meaning of FDCPA).
The Sixth Circuit Court of Appeals defines debt collector as including "any nonoriginating debt holder that either acquired a debt in default or has treated the debt as if it were in default at the time of acquisition." Bridge, 681 F.3d at 362 (stating that "[i]t matters not whether such treatment was due to a clerical mistake, other error, or intention."). A defendant sued under the FDCPA "cannot escape
The court finds the plaintiff's complaint sets forth sufficient facts to state a claim for a violation of the FDCPA. The plaintiff alleges the defendant is a debt collector and that it obtained interest in the debt after it was in default. Plaintiff has sufficiently alleged facts demonstrating that the defendant is a debt collector within the meaning of the FDCPA. The allegations of the complaint, which sets out the language of the letter and incorporates it, support a plausible inference that SPS is a debt collector and was engaged in debt collection. In the letter, SPS clearly asks for money. Although the letter states the underlying obligation was discharged, dismissed or stayed, it implies that payment is obliged, since it asks for payment of money, even providing instructions on payment. The purpose of the letter is an attempt to collect monies that were owed on the obligation. From the language of the letter, the court finds it evident that SPS's purpose was not to enforce a security interest, but an attempt to collect the underlying loan debt. Clearly, the communication is intended to encourage Donnelly-Tovar to pay a debt she is no longer obligated to pay.
The court agrees with the plaintiff that the letter could be confusing and deceptive. Although the letter truthfully states that the owner of the mortgage retains its enforceable lien on the property, it does not identify itself or anyone else as the owner of the mortgage, nor inform her of the effect of any release of the lien on her interests. The court finds the defendant's letter would confuse the unsophisticated consumer. The letter is inherently contradictory. It purports to tell the plaintiff her "personal liability on the note may be discharged, dismissed, or subject to an automatic stay," but at the time asks for a substantial payment in "settlement." The letter states it is not an attempt to collect a debt, yet SPS is identified as a licensed debt collector. Although the letter refers to a note, no note is identified. Notably, the letter does not refer to First Franklin or any other entity, including itself, as the mortgage holder. SPS states that "compliance" is one purpose of the communication, without reference to any statute or law requiring such compliance. There is no reference to any foreclosure, or any explicit statement that the defendant has no obligation to pay the amount secured by the lien.
SPS states at one point in the letter that its records indicate the obligation "has been discharged, dismissed or is subject to an automatic stay of bankruptcy order," without stating which of those alternatives apply. Later, the letter vaguely states that the debt "may be either discharged,
The court finds that defendant's argument that the letter contains no hint of any obligation on the part of Donnelly-Tovar is disingenuous, if not specious. Its characterization of the correspondence as a simple attempt to offer the plaintiff an opportunity to obtain a release of the lien is similarly untenable. The letter clearly asks for a substantial amount of money. An unsophisticated consumer would reasonably assume there was some sort of obligation connected to the request. A fair reading of the letter shows that that SPS misrepresents the character or amount of plaintiff's debt and fails to comply with other requirements of the FDCPA. The court finds the complaint contains factual allegations from which the court can draw the reasonable inference that the defendant is liable for the FDCPA violations alleged in the complaint.
The defendant's reliance on 15 U.S.C. § 1692f(6) and on cases involving repossession of collateral is misplaced. The defendant relies on the sort of "clever arguments" and "technical loopholes" that courts have rejected in recent cases. Further, defendant's protestation that it cannot be engaged in debt collection because there is no debt is unavailing. The coverage of the FDCPA reaches consumers mistakenly dunned for a debt and those consumers have no actual debt. If the letter is not an attempt to collect a debt, then it can only be an attempt to defraud or extort money from a person with no obligation to pay it or solicitation of a gift. A disclaimer stating that the letter "is not an attempt to collect a debt," does not make that true, especially in view of indications on the face of the document that the communication is intended to obtain money and is connected to a present or former obligation to pay an indebtedness.
The collection letter at issue here is at best confusing to an unsophisticated consumer and at worst an intentionally misleading attempt to induce unsuspecting consumers into paying money on nonexistent debts. The court is troubled by the prospect that this case may involve a third-party debt buyer attempting to collect money from a consumer on a debt she does not owe.
