Case Law Newsletter

Noonan and Lieberman keeps you current on litigation news with its regular Case Law Update focusing on important and emerging trends in federal and state case law. Case Law Update is edited by attorney James V. Noonan.

Sign up for the list

The newsletter is sent out monthly.

Archive

February 2010

California Bankruptcy Court’s local form mandating enhanced reporting requirements for creditors approved by Bankruptcy Appellate Panel

In Re Herrera, BAP No. CC-09-1155 (Bankr., 9th Cir., January 5, 2010) involved three separate Chapter 13 cases whereby the mortgagees holding mortgages on the debtors’ primary residences objected to confirmation of proposed plans that incorporated a local form containing optional plan provisions approved by the district’s bankruptcy judges. The form imposed various post-confirmation reporting and other duties on the mortgagees. The mortgagees argued 1) that Congress intended that RESPA occupy the field requiring reports from mortgage creditors to debtors regarding loans on primary residences, to the exclusion of the states and other branches of the federal government, including the courts, and 2) that inclusion of the challenged form in the debtors’ confirmed plans violated the Bankruptcy Code’s antimodification provision. The bankruptcy judges overruled the objections and the creditor’s appealed. For the first argument, the Bankruptcy Appellate Panel found that use of the form did not violate the separation of powers doctrine because judges were not compelled to use the form. Use of the form was optional. Also, RESPA undercuts the argument that Congress intended that RESPA “occupy the field” when it comes to the mortgagee’s obligations to report to mortgagors. RESPA provides a floor, a minimum set of disclosures required of mortgage creditors to borrowers; it does not limit it. The court noted that the recent amendment to the Truth in Lending Act imposes even more substantially intrusive reporting requirement on mortgage creditors than RESPA’s requirements reporting requirements on mortgagees. See, 12 C.F.R. § 226.36©(1)(iii) suggesting that RESPA is not the final word on reporting. As for the form’s alleged violation of the anti-modification provision in the mortgages, the court found there was nothing in the form that limits or modifies these rights. The mortgagees’ right to seek recovery of all post-petition charges under the mortgage was not impacted by the debtors’ confirmed plans or the form provisions. More significantly, there was no provision in the mortgage instruments that grants the mortgagees a “right” to decline to provide accountings and reports to the debtors or a trustee beyond those prescribed by the mortgage contracts, or any sort of bargained for prohibition on modification of duties under the contract. On the other hand, the contracts expressly acknowledge that RESPA imposes duties on the mortgagees to provide account reports. As such while reporting may be a duty it is not a right. Consequently, the anti-modification provision was not applicable in this dispute.

The inclusion of a Spanish sentence in an English language notice of a debt collector’s dunning letter violated FDCPA by overshadowing the rest of the notice

The U.S. District Court for the Eastern District of New York held in Erich v. I.C. System, Inc., No. CV-09-726 (E.D.N.Y., January 20, 2010) that a Spanish sentence inserted into the English language notice of a debt collector’s dunning letter violated FDCPA by overshadowing the rest of the notice. The subject dunning notice in this class action case contained a sentence reading “si ud tiene alguna pregunta acera de esta cuenta llame 800/279-9420 y referir al numero de su cuenta” translated as “if you have some questions regarding your account, call 800/270-9420 and refer to your account number.” The debtors contended that the inclusion of this sentence in the notice violated Section 1692g of FDCPA because it encouraged Spanish speaking debtors to call and thereby waive their right to notice. In denying the debt collectors motion for summary judgment the court found this was a case of first impression. The notice, the court concluded, was ambiguous to Spanish speaking debtors because it did not clearly state the available options. In fact, it found that the inclusion of the phone number actually encouraged the Spanish speaking debtors to call and potentially waive their right to challenge the debt’s validity. Although the notice was technically compliant with TILA in that the Spanish sentence was of a uniform font and size with the rest of the notice, “it nonetheless destroyed the overall uniform presentation of the letter because the eyes of the Spanish-speaking consumer could gravitate to the Spanish text”.

A consumer’s allegation that the value in the residence declined, rather than the value of the equity in the residence declined, is sufficient to state a claim that the creditor improperly reduced consumer’s HELOC.

A recent decision from the Northern District of Illinois, Hickman v. Wells Fargo Bank, 09-cv-5090 (N.D. Ill., Jan. 26, 2010) followed the holding in Levin v. Citibank, N.A., 2009 WL 3008378 (N.D.Cal., 2009) that a complaint contending that a creditor violated TILA and Regulation Z by impermissibly reducing the consumer’s line of credit cannot be dismissed where it specifically alleges that the value of his home had declined significantly. In this case, the consumer obtained an appraisal subsequent to receiving notice of a reduction in his credit line and that the appraisal indicated that the value of his home had declined less than ten percent from its value at the time plaintiff opened the HELOC. The creditor moved to dismiss the complaint. It did not dispute that the consumer had alleged that the creditor reduced his HELOC. Instead, relying on Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), it argued that the consumer ‘s conclusory statement that “on information and belief, neither [the consumer’s] property nor the property of the Class members has significantly declined in value,” was insufficient to survive a 12(b)(6) motion to dismiss. Following the reasoning in Levin, the district court held that the consumer’s allegations that the value of his home had declined significantly were sufficient to survive a motion to dismiss. The consumer did not have to allege that the equity in his home did not decline significantly. The court rejected the consumer’s theory that the creditor also violated TILA by not including in its notice “specific reasons” for the reduction. The consumer suggested that the notice should have disclosed such information as the creditor’s valuation of the property, how it came to that valuation, the methods used to support that valuation, etc. The court held that the stated reason which was “a substantial decline in the value of the property” sufficed.