The Court of Appeals for the Eighth Circuit has vacated a lower court’s dismissal of a Fair Debt Collection Practices Act claim against a collection law firm because it allegedly never sent the plaintiff the payoff request that she provided. The decision sends the case back for further proceedings and highlights a nuanced and unresolved issue for collection attorneys and servicers: when a failure to comply with state foreclosure requirements may also trigger liability under the FDCPA.
The background: The case stems from a mortgage that fell into default after the borrower passed away and the property transferred to heirs. Following missed and partial payments, the creditor initiated a nonjudicial foreclosure and retained a collection law firm to carry out the process.
- After foreclosure proceedings had begun but before the sheriff’s sale, the plaintiff, through counsel, allegedly requested a payoff amount and indicated she had the financial ability to satisfy the loan. The law firm acknowledged the request, according to court documents, and agreed to provide the figure but never followed through.
- Roughly a week later, the property was sold at auction. The plaintiff later redeemed the property at a significantly higher amount than the loan balance reflected in prior statements, which she claimed included additional charges that could have been avoided had she received the payoff figure.
- She brought claims under both the Truth in Lending Act and the FDCPA. While the TILA claim was dismissed and affirmed on appeal, the FDCPA claim centered on whether proceeding with foreclosure without providing the requested payoff amount meant the law firm lacked a “present right to possession” under Section 1692f(6)(A).
The ruling: The Eighth Circuit did not decide whether the conduct ultimately violated the FDCPA. Instead, it found that the issue was more complex than the district court’s dismissal suggested and warranted further analysis.
- At the heart of the dispute is Minnesota’s reinstatement statute, which gives borrowers the right to cure a default prior to foreclosure by paying delinquent amounts. The statute requires the mortgage holder to provide a reinstatement or payoff amount within a specific timeframe after a request. The appellate court noted that this right is “absolute” and intended “to protect mortgagors and be construed in their favor.”
- The key unresolved question is whether failing to provide that payoff amount could temporarily suspend the creditor’s right to foreclose, thereby eliminating the “present right to possession” required under the FDCPA at the time foreclosure actions were taken.
- The court acknowledged the district court’s concern about turning every state law violation into a federal FDCPA claim, noting that the statute “was not meant to convert every violation of a state debt collection law into a federal violation.”
- However, it emphasized that this case may involve a narrower and more significant issue: whether violations tied to a borrower’s right to cure a default are materially different from other procedural defects in foreclosure.
