The Northern District of Indiana recently dismissed a lawsuit against a mortgagee/servicer finding correspondence sent by the lender, a debt collector, regarding lender-placed insurance did not constitute “communication…‘made in connection with the collection of any debt’” under § 1692 of the Fair Debt Collection Practices Act. Mohr v. Newrez, LLC. (quoting 15 U.S.C. §§ 1692c(a)-(b), 1692e, 1692g). In Mohr, the debtor sued his mortgagee/servicer, Newrez, LLC (“Newrez”), in federal court for alleged violations of § 1692e of the FDCPA after receiving three letters from Newrez that pertained to lender-placed insurance. The letters came after Mohr had agreed to the filing of a consent foreclosure of his mortgage and after Mohr had obtained a bankruptcy discharge of his personal obligation to pay the mortgage debt.
The first two letters were identical in most respects and provided Mohr with notice that his homeowner’s hazard insurance expired and that Newrez planned to buy insurance for the property if Mohr failed to provide proof of insurance. Both letters also contained notices that the information they contained was solely for “compliance and informational” purposes if Mohr’s mortgage obligation had been previously discharged in bankruptcy. Unlike the first letter, the second included the estimated cost for the insurance and advised that cost “may be significantly more expensive” than insurance Mohr could purchase on his own. Newrez sent the third letter after entry of the consent foreclosure judgment advising Mohr that Newrez “had obtained lender-placed insurance” and notably advised the correspondence was “not an invoice” for the lender-placed insurance.
Section 1692e of the FDCPA prohibits debt collectors from communicating with a debtor in a “false, deceptive, misleading, unfair, or unconscionable…” manner. However, to be entitled to relief under § 1692e a plaintiff’s complaint must meet “two threshold criteria.” The complaint must establish that (1) the defendant is a “debt collector” as defined by the act, and (2) that the complained of communications were made for the purpose of collecting a debt. Newrez conceded that it was a debt collector under § 1692a(6) for purposes of the Court’s consideration of Newrez’s motion to dismiss.
The Court noted the complaint allegations “must go beyond providing ‘labels and conclusions’ and ‘be enough to raise a right to relief above the speculative level.’” Mohr argued the three letters constituted debt collection and that Newrez sent them in violation of § 1692e, § 1692e(2) and § 1692e(1) of the FDCPA because they contained misleading and false information.
The District Court noted the issue of whether Newrez sent the letters for the purpose of collecting a debt presented “an objective question of fact” which the Court again explained was a threshold issue. In evaluating this issue, the Court conducted a three-prong analysis wherein it considered “whether there was a demand for payment, the nature of the parties’ relationship, and the purpose and context of the communications.” The Court concluded two of the three factors weighed in favor of finding the three letters were not made for purposes of debt collection. Firstly, the letters did not contain “an explicit demand for payment … [but rather] … encouraged plaintiff to purchase his own insurance.” Secondly, the Court noted the purpose and context of the letters was to comply with federal regulations which required such communication prior to force-placing insurance. The Court did note prior litigation between the parties and the lender/mortgagor relationship did weigh in favor of the letters being considered debt collection activity; however, the Court explained “considering the circumstances as a whole…the letters were merely informational notices, explaining plaintiff’s options.”
Mohr also argued the letters were false and unfair. Mohr reasoned his personal obligation on his mortgage was discharged by his Chapter 7 bankruptcy, but the post-discharge notices falsely suggested he was still personally liable and that he was required to pay a debt he did not owe. Mohr also alleged Newrez’s conduct was “unfair” because (1) Newrez’s undue delay obtaining the consent judgment necessitated lender-placed insurance and (2) the amount of insurance was “excessive.” The Court did not even get to these arguments “having answered the threshold question [that the three letters were not an attempt to collect a debt] in the negative.”
The Court dismissed Mohr’s complaint noting that other courts which considered this threshold issue had reached the same conclusion “almost uniformly.” This well-written and thorough opinion will prove useful in resolving FDCPA claims in the early pleading stages of litigation prior to costly and timely discovery.