A Magistrate Court judge in Massachusetts ruled that a Fair Debt Collection Practices Act case is heading to trial, partially granting a defendant’s motion for summary judgment and denying a similar motion from the plaintiff, which accused the defendant, a collection law firm, over claims to collect on a debt that had been discharged in bankruptcy.
The background: The plaintiff purchased a condo in Massachusetts in 2004, financing it with two mortgage loans. She defaulted on the second mortgage, a $45,000 loan, in 2008, and filed for Chapter 13 bankruptcy in 2010. During the bankruptcy proceedings, the second mortgage lien was treated as unsecured and was “stripped off” entirely in 2013, meaning the plaintiff had no further personal liability and the lien itself was avoided and unenforceable.
- Nearly a decade after the discharge order, the defendant acquired the second mortgage from the prior servicer. There is no dispute that the lien had been stripped off, and no dispute that the defendant eventually learned of the bankruptcy in June 2021, several months after acquiring the loan.
- After acquiring the loan, the defendant sent the plaintiff a transfer notice asking her to redirect payments, a corrected balance letter, and eventually a payoff letter sent in response to a request from the plaintiff’s mortgage broker. The defendant also rejected the plaintiff’s $28,000 settlement offer, and later sent the plaintiff a letter from its bankruptcy department claiming the lien was still enforceable.
- The defendant then referred the account to a law firm, which sent additional collection letters and initiated foreclosure proceedings, threatening the plaintiff with eviction if she did not cure more than $69,000 in past-due payments.
- The plaintiff filed suit in June 2022 under the FDCPA and for violation of the bankruptcy discharge injunction. Her core theory was that the defendant had no right to collect anything, because the lien had been stripped, yet it spent months demanding payment and threatening foreclosure.
The ruling: Judge M. Page Kelley of the District Court for the District of Massachusetts denied summary judgment for the defendant on most claims and denied the plaintiff’s motion for partial summary judgment in full, sending the case to trial next month.
- On the discharge injunction claim based on the defendant’s June 2021 payoff letter, the judge granted summary judgment for the defendant. Judge Kelley found that the plaintiff had not presented sufficient evidence that the defendant had constructive or actual notice of the discharge order before June 30, 2021, when it first learned of the bankruptcy through a third-party vendor. The fact that the discharge order was a matter of public record was not, without more, enough to establish constructive notice.
- On the discharge injunction claim based on the October 2021 letter, however, the judge found a triable issue. By then, the defendant knew about the bankruptcy, had reviewed the docket, but sent the plaintiff a letter asserting it held an enforceable lien and disclosing a lien balance of over $80,000. The judge ruled that a reasonable jury could conclude the letter was improperly coercive given that the lien had been stripped.
- On the FDCPA claim based on the October 2021 letter, the judge similarly found a triable issue. The letter stated on its face that the defendant was “attempting to collect a debt” and specified an outstanding balance. Judge Kelley noted that the surrounding context mattered, including that the defendant had previously solicited a settlement offer, rejected it, and suggested that a sale or foreclosure might be in its best interest.
- The judge also declined to enter summary judgment for the plaintiff on her FDCPA claims based on collection letters sent by the defendant’s law firm, finding a triable issue on whether those letters amounted to debt collection or merely lien enforcement under the FDCPA’s limited-purpose debt collector definition.
