Fair Debt Collections Practices Act: The Vehicle To Drive To Get The Best Loan Modification Offer

By Author: Podvin L Scott
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It is predicted that from 2011 to 2013, approximately 5-7 million more foreclosures will be filed in the United States. Compounding this problem, South Florida home values have fallen 54.7 percent, the largest drop among the top 25 markets covered by Zillow, a real estate analytics firm, and are significantly underwater. Unless lenders or loan servicers are willing to write down the outstanding principal balance of the loan, bringing the loan amount in line with the current market value of the property, fewer homeowners will likely elect to participate in a trial or permanent loan modification program. If they do participate, homeowners will be forced to pay 50-200 percent more for their home than it is worth.

The Miami Herald reported on February 11, 2011 that as a result of plunging South Florida property values, the number of homeowners who owe more on their homes than the current market value has risen to 42.8 percent. Thus, there are an exponentially growing number of people considering whether to “strategically default” on their mortgage loans, unless they are already steeped in the unenviable position of ...
... being a defendant in a foreclosure case.

If you are about to become delinquent on your mortgage, are delinquent or have been delinquent for the last 3-6 months, you should expect to be deluged by a debt collector’s phone calls and letters seeking to collect a debt ostensibly pursuant to the Fair Debt Collections Practices Act (FDCPA).

You should visit Florida Homestead Law Group’s website at www.homesteadlegal.com to better understand your rights, specifically those safeguarded by the FDCPA, as set forth in 15 U.S.C. § 1692, et seq.

This article initially discusses the birth and objectives of the Fair Debt Collection Practices Act (the “Act”), and it provides a short synopsis explaining which debt collectors are subject to the FDCPA and what type of transactions it protects. Subsequently, this article explores typical “abusive and deceptive” practices prohibited by the FDCPA, and concludes by providing helpful suggestions that might safeguard your rights while minimizing the headaches that you might get from dealing with pernicious debt collectors.

The Birth and Objectives of the Fair Debt Collections Practices Act

Title VIII of the Consumer Credit Protection Act, when it was amended in 1978, gave birth to the Fair Debt Collections Practices Act (FDCPA). The main objectives of the FDCPA are: (1) to eliminate abusive practices in the collection of consumer debts, (2) to promote fair debt collection, and (3) to provide consumers with the means, vehicle and avenue for disputing and obtaining validation of debt information to ensure the information’s accuracy.

To that end, the FDCPA establishes guidelines under which debt collectors may conduct business, defines rights of consumers involved with debt collectors, and prescribes penalties and remedies for violations of the Act.

Who Must Comply With The Act?

The FDCPA broadly defines a “debt collector” as “any person who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”

While the definitions, people and entities covered or excepted under the FDCPA have evolved over time, after the October 13, 2006 passage of the Financial Services Regulatory Relief Act of 2006, attorneys have now been included within the definition of debt collector –only to the extent that the attorney(s) otherwise meet the definition of debt collector. Thus, when your lender or loan servicer hires an attorney to commence foreclosure proceedings, typically the attorney will include a FDCPA notice with their foreclosure complaint.

What Type of Transactions Are Covered By the Fair Debt Collections Practices Act?

The FDCPA’s definition of “consumers” and “debt” specifically restricts the coverage of the FDCPA to personal, family or household transactions (e.g., home loans). To that extent, debts owed by businesses (or by individuals for business purposes) are not subject to the FDCPA.

PROHIBITED CONDUCT

The FDCPA is directly applicable to a lender’s or loan servicer’s attempts to collect a delinquent mortgage loan, particularly if your lender has hired a law firm who has been engaged and regularly seeks to either modify or foreclose mortgage loans.

FDCPA prohibits certain types of “abusive and deceptive” conduct when attempting to collect debts. Here are some of the most common abusive and deceptive practices that mortgage lenders, loan servicers or their affiliates violate:

>> Failing to cease communication upon request; communicating with consumers in any way (other than litigation) after receiving written notice that the consumer wishes no further communication or refuses to pay the alleged debt. This includes certain exceptions such as advising collection efforts are being terminated or that the collector intends to file a lawsuit or pursue other remedies where permitted. See 15 U.S.C. § 1692c©.

>> Contacting a consumer known to be represented by an attorney. See 15 U.S.C. § 1692c(a)(2).

>> Communicating with a consumer after the consumer requests that the debt collector validate the existence and amount of the debt is prohibited. A debt collector may violate the FDCPA if and when the debt collector communicates with a consumer, or pursues collection efforts, after the debt collector receives a consumer’s written request to verify the existence and amount of the debt; provided that the consumer makes the request to verify within the 30-day validation period. See 15 U.S.C. § 1692g(b). Otherwise stated, the FDCPA requires debt collectors to verify the existence and amount of the alleged debt. If a consumer sends a written dispute or request for verification to a debt collector within 30-days of receiving a Section 1692g notice, then the debt collector must either (a) mail the consumer the requested information or (b) cease collection efforts altogether. Such asserted disputes by consumers must also be reported by the creditor to any credit bureau that reports the debt.

>> Seeking unjustified amounts, which includes demanding any amounts not permitted under an applicable contract or as provided under applicable law. See 15 U.S.C. § 1692f(1).

>> Reporting false information on a consumer’s credit report or threatening to do so in the process of collection. See 15 U.S.C. § 1692e(8).

Helpful Suggestions

>> To cause a debt collector seeking to bring your delinquent loan current to cease communicating with you, you should consider hiring a law firm that specializes in foreclosure defense and is extremely knowledgeable in and understands the contours and parameters of the FDCPA, such as the Florida Homestead Law Group (www.homesteadlegal.com). Alternatively, you might consider sending your debt collector a written request indicating that they should “cease and desist” from communicating with you further regarding its collection efforts of your mortgage pursuant to 15 U.S.C. § 1692c©.

>> Hire a law firm experienced in foreclosure defense and then notify your debt collector, in writing, that they should deliver any and all future correspondences and communications directly to your attorney unless your newly hired attorney agrees to write such a letter.

>> As soon as you receive a FDCPA Notice from your debt collector or lender’s or loan servicer’s attorney, if you have not already retained a law firm, you should deliver a letter to your debt collector via certified mail, return receipt requested disputing the debt and asking the debt collector to verify the existence and amount of the outstanding indebtedness. Such a written request should be made and delivered to the lender within 30-days after receiving the FDCPA Notice pursuant to 15 U.S.C. § 1692g(b).

>> If your lender demands any amounts not permitted under an applicable contract, or as provided under applicable law, then you should assert the affirmative defense or counter-claim of violation of the FDCPA pursuant to 15 U.S.C. § 1692f(1). This is true especially since the FDCPA is a strict liability law, which means that a consumer need not prove actual damages in order to claim statutory damages of up to $1,000, plus reasonable attorneys’ fees and costs pursuant to 15 U.S.C. § 1692k(a)(2).

>> If your delinquent loan has been securitized, more likely than not, your loan servicer prior to or during the foreclosure proceedings may have violated the FDCPA by sending a negative credit report to the credit bureaus stating that you have become delinquent on your loan, when the loan servicer cannot prove that it owns or holds your mortgage loan. Invariably, securitized loans require three separate and identifiable assignments of mortgage; however, loan servicers may have difficulties in locating any or all of these assignments, let alone the original promissory note. Indeed, in these (and other) instances, your lender’s or loan servicer’s attorneys may file a count in the foreclosure complaint seeking to re-establish the lost note pursuant to Section 673.3091 of the Florida Statutes. If it turns out that the loan servicer cannot locate the note and cannot prove up the chain of title of your mortgage and note from the originating lender into the hands of the foreclosing servicer, then, to the extent that the loan servicer delivered a negative credit report to the credit bureaus, the loan servicer may have violated the FDCPA for reporting false information on a consumer’s credit report or threatening to do so in the process of collection. See 15 U.S.C. § 1692e(8). In this instance, experienced attorneys may file an affirmative defense or counter-claim alleging violation of the FDCPA in conjunction with the Florida Unfair and Deceptive Trade Practices Act (FUDTPA). If this is the case, you may be entitled to a jury trial, at least on the counter-claim, although you may only be entitled to a bench trial on the underlying foreclosure claim. Either way, to learn more about filing such affirmative defenses or counter-claims you should visit www.homesteadlegal.com.

CONCLUSION

The foreclosure frenzy, despite the recent moratorium, is predicted to continue to reach new record-breaking heights during and throughout 2011-2013. In light of the well-documented and over-reported failure of the Home Affordable Modification Program to result in sustainable loan modifications, it is reasonably foreseeable that fewer loan modifications will be made and entered into in the coming years for underwater loans, unless lenders agree to start writing down the outstanding principal balance of loans. Frankly, this might not happen. Thus, the term “strategic default” should become a household term. In this instance, debt collectors may engage in abusive and deceptive practices prior to and at the outset of foreclosures. To better protect your rights, and to realize the best possible loan modification offer from your lender or loan servicer, you should strongly consider hiring an attorney not only knowledgeable in foreclosure defense, but also the FDCPA.

The Florida Homestead Law Group, based in South Florida, is a firm of experienced foreclosure defense attorneys dedicated to providing Florida residents focused interdisciplinary services. For more details and information Scott Podvin please visit our website homesteadlegal.com