Communications in connection with the renegotiation of a loan are not debt collection under Texas debt collection law

A federal appeals court in Texas confirmed in Clark v. Deutsche Bank Nat’l Tr. Co. for Morgan Stanley ABS Capital I, Inc., Tr. 2006-HE3, No. 16-11806 (5th Cir. Jan. 22, 2018) that communications made in connection with a loan modification agreement doo not relate to the collection of a debt and are therefore not covered by the Texas Debt Collection Act.

The homeowner Plaintiffs in executed a Texas Home Equity Note on their home which was later assigned to the Creditor Defendants. In 2011, the homeowners defaulted and throughout 2013 they attempted to modify the loan. In December 2013, they received from the servicer “a letter of eligibility for a Home Affordable Modification Program (HAMP) loan” stating in part:

“Now that we’ve received your documents, our loan processing team will carefully review what you’ve submitted to determine if you are eligible for mortgage payment relief under the Home Affordable Modification Program. I will follow up with you by Sunday, January 12, 2014 to outline next steps in the process and address any additional documents that might be needed to complete our review. While we are reviewing your information … your home will not be referred to foreclosure…. [I]t’s important for you to continue making your regular mortgage payments until you hear from us.”

The homeowners immediately sent in the HAMP loan application with the requested documentation. One week later, they received a letter stating they failed to qualify “because [the servicer] is prohibited from adjusting the original terms of the mortgage due to state law restrictions as provided under Texas Constitution Art. 16, Sec. 50 (a)(6).”
The homeowners filed suit, asserting claims for breach of contract and violations of the Texas Debt Collection Act (“TDCA”). They alleged the Creditors used false representations or deceptive means to collect a debt and obtain information concerning a consumer thus violating § 392.304(a)(19) of the Texas Finance Code. In particular, they claimed the Creditors “deceptively instructed and encouraged [them] to apply for the HAMP loan modification” and “made affirmative statements about [the loan] and a HAMP loan modification” even though the loan could not be modified.

The court granted Creditors’ motion to dismiss. The only issue on appeal was whether the district court erred in dismissing the claim under § 392.304(a)(19) which prohibits debt collectors from “using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer.”

To maintain a cause of action, the court observed, “the debt collector must have made an affirmative statement that was false or misleading.” The court agreed that none of the Creditors’ alleged statements—including the letter of eligibility—affirmatively represented that the homeowners qualified or would qualify for the loan modification program. The court referenced an unpublished opinion, which made clear that even when a creditor tells a debtor “not to worry” about qualifying for a loan modification, such encouragement is not such an affirmative statement upon which relief may be granted.

The court also held that the homeowners failed to allege a cause of action because, as it held in another case, “[c]ommunications in connection with the renegotiation of a loan do not concern the collection of a debt but, instead, relate to its modification and thus they do not state a claim under Section 392.304(a)(19).” The homeowners relied on loan-modification discussions in the letter of eligibility to support their § 392.304(a)(19) claim. “Yet we have repeatedly rejected similar TDCA claims arising from protracted loan-modification discussions that end in foreclosure.”

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