Summary:
John Koontz received a Chapter 7 discharge, including for his mortgage, which was not reaffirmed. Years later, SN Servicing Corporation (SNSC) sent two letters referring to his mortgage loan, which included past-due fees. Koontz filed a putative class action, claiming violations of the FDCPA and West Virginia’s debt collection laws.
The lower court dismissed the case, finding that Koontz was no longer a "consumer" with a "debt" under the FDCPA because of his bankruptcy discharge and accordingly, the letters were not debt collection attempts.
The Fourth Circuit reversed in part and remanded holding that Koontz remains a “consumer” with a “debt” under the FDCPA, even after a Chapter 7 discharge, because the mortgage lien survives in rem (against the property). The letters constituted debt collection attempts, as they referred to the loan as a "debt" and requested payment of fees. Koontz adequately stated a claim under § 1692f (unfair practices), particularly for charging late fees above the contractual limit, but did not sufficiently plead a claim under § 1692e (false or misleading representation).
The state law claim was also wrongly dismissed, as it parallels the federal definitions and standards.
Commentary:
Nice win with NCBRC and NACBA as amici.
Consumers can still be “obligated” on debts for purposes of the FDCPA even after bankruptcy, due to surviving liens. Communications suggesting enforcement of a mortgage lien—even post-discharge—can be considered attempts to collect a debt under the FDCPA. The decision clarifies that mortgage servicers must tread carefully in post-bankruptcy communications, particularly regarding fees and payment processing.
This fits neatly with Judge Beyer's recent opinion from In re Peach (summary forthcoming) that bankruptcy does not excuse compliance with other state and federal laws.
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To read a copy of the transcript, please see:
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