Mortgage statements may be subject to collection rules: 11th Circuit

Attorneys are starting to warn mortgage companies that a recent 11th Circuit Court of Appeals decision means servicers need to be more careful about the wording in their billing statements.

In the case, Daniels v. Select Portfolio Servicing, a panel of judges, in a two-to-one vote, decided that monthly mortgage statements could be considered communications related to the collection of a debt under state and federal rules.

“This decision should prompt mortgage servicers to reconsider the language included in periodic statements, particularly for those sent to delinquent borrowers or for accounts in bankruptcy,” said Reid Herilhy, an attorney at Ballard Spahr, in a report Monday.

Interpretations of the Truth in Lending Act and the Federal Debt Collection Practices Act were at issue in the decision issued late last month, in which the panel found some types of communications in monthly statements could be covered by the FDCPA and a similar Florida statute.               

“We hold that they may, at least when — as here — they contain debt-collection language that is not required by the TILA or its regulations and the context suggests that they are attempts to collect or induce payment on a debt,” the panel said in an opinion filed with the court.

The move reversed a lower court’s opinion, which supported Select Portfolio Servicing’s view that monthly statements “were not communications in connection with the collection of a debt and therefore not covered by the FDCPA and the FCCPA.”

The next step could be either a rehearing by the full 11th Circuit or seeking certiorari by the Supreme Court.

“Could this become a Supreme Court issue? I don’t know, potentially, but I think the immediate takeaway should be that the language in the monthly statement is important,” said Richard Horn, an attorney with law firm Garris Horn. “It seems like if you stay within the four corners of the standard form and the requirements under Reg Z that you may have a measure of safety in terms of that periodic statement not turning into a debt collector’s communication, but if you start to get fancy that’s when problems could come up,” 

The prior district court’s opinion relied on 2013 Consumer Financial Protection Bureau guidance aimed at addressing conflicts between “cease communications” notices under debt collection rules that might conflict with other servicing requirements, but circuit court judges disagreed with that interpretation.

“Other courts have accepted that the statement is not a debt collection communication, but this court has taken the position that the addition of what we call ‘mini Miranda’ makes it into one,”  said Jeffrey Naimon, a partner in the Washington office of Buckley LLP.

Dissenting Judge Barbara Lagoa of the 11th Circuit said would have upheld the lower court’s decision even though she agreed that a mortgage statement “that generally complies with the TILA and its regulations can plausibly be a communication ‘in connection with the collection of a…debt.’”

Lagoa deemed a line describing the statement  “an attempt to collect a debt” as insufficient to establish it as a collection action subject to the FDCPA and the Florida Consumer Collection Practices Act, which are aimed at preventing “abusive” activity.

“Courts should look at the substance of the communication to determine whether the FDCPA applies, i.e., by determining whether the communication uses language typically seen or used in debt-collection efforts,” Lagoa said, noting “that type of language is not present here.”

Dissent within the panel opens up a slim chance that the 11th Circuit Court could end up reconsidering the case if SPS were to appeal it.

“The two-to-one aspect of the panel’s decision makes it more likely we’ll see a motion for reconsideration en banc,” Naimon said. “The full circuit occasionally takes a second look at a handful of  cases, and they are more likely to do so if a panel was split.”