The Court of Appeals for the Seventh Circuit has affirmed the dismissal of a Fair Credit Reporting Act lawsuit against a defendant, ruling that determining whether a consumer’s mortgage was discharged in bankruptcy is a legal question that credit reporting agencies are not required to answer.
The background: The plaintiff obtained a home mortgage in 2010 and later defaulted on the loan.
- In 2016, she transferred the deed to her home back to the loan servicer through a deed in lieu of foreclosure, which stated that the entire unpaid balance was immediately due and that release of her personal liability was part of the consideration for the transfer.
- Two years later, she filed for Chapter 13 bankruptcy and received a discharge. The discharge order did not mention the mortgage and cautioned that “[b]ecause the law is complicated, you should consult an attorney to determine the exact effect of the discharge in this case.”
- When the plaintiff obtained a copy of her credit report in 2022, it reflected the bankruptcy discharge but also listed the mortgage account with a $145,952 balance, a $2,762 past-due amount, and a notation reading “Creditor received deed. Balloon payment of $67,209 due Dec 2055.”
- She sued the defendant, a credit reporting agency, alleging the report conveyed a misleading impression of her credit status and that the defendant failed to follow reasonable procedures to assure maximum possible accuracy.
- A District Court judge in Illinois dismissed the complaint, ruling that whether the deed in lieu of foreclosure made the mortgage unsecured, and whether that debt was then discharged, were legal determinations the defendant was not obligated to make.
The ruling: The Appeals Court affirmed the dismissal.
- Judge Candace Jackson-Akiwumi of the Court of Appeals for the Seventh Circuit, who wrote that the court has examined the “sometimes-murky boundary between ‘law’ and ‘fact'” several times in recent years, and each time has reaffirmed that “[t]he power to resolve … legal issues exceeds the competencies of consumer reporting agencies.”
- Credit reporting agencies must report facts that can be verified from available records, the judge wrote, but they have no obligation to interpret those records, resolve legal disputes, or determine whether a debt is valid or enforceable.
- The discharge status of the plaintiff’s mortgage was not an objective fact apparent from the face of the discharge order, which said nothing about the account.
- The plaintiff’s argument that the report was internally inconsistent failed for the same reason: the report is only inconsistent if the mortgage was actually discharged, and answering that question requires legal analysis. “No matter how [the plaintiff] phrases her claim, she runs into the same roadblock,” the judge wrote.
- Judge Jackson-Akiwumi left the door open for future cases, noting there may someday be a situation where the meaning of a legal document is “so commonplace or unambiguous” that an agency that overlooks it could be liable for a factual inaccuracy.
