New York court holds that notifying discharged debtor that hazard insurance lapsed not debt collection under the FDCPA

Notices sent by loan server advising mortgagor who was discharged in Bankruptcy, and that she we would be responsible for the costs of replacement coverage, were not attempts to collect a debt under the FDCPA.

In Burns v. Seterus, Inc., No. 16-CV-06638 (W.D.N.Y. Jan. 11, 2017) the mortgage servicer sent a discharged debtor several notices that the debtor’s hazard insurance had lapsed. The notices demanded proof from the debtor that insurance was in place and that she would be “solely responsible for repayment of the cost” of the insurance policy if the servicer had to obtain it.

The notices did not include a demand for payment, discussion of a deadline to pay, threats in the event of nonpayment, or mention of the debtor’s discharged mortgage debt. The notices further informed plaintiff that the insurance policy obtained by defendant could be “cancelled at any time by providing [servicer] acceptable proof of insurance.” The notices also included a bold bankruptcy disclaimer advising the debtor that as a result of a bankruptcy discharge she is not personally liable on the debt.

The debtor sued contending that the notices were illegal attempts to collect a discharged debt in violation of the FDCPA. The court concluded that the notices did fall not within the ambit of the FDCPA.

Notwithstanding the statement informing debtor that she was responsible for the cost of the insurance policy, there were insufficient facts to demonstrate that the notices were sent in connection with the collection of a debt. “The context of the notices, which fail to include any statement of by when, how, and to whom the alleged debt must be paid, demonstrate that they were not sent in connection with the collection of any debt.” Moreover, the Court found that the bankruptcy disclaimer contained were sufficiently prominent and unambiguous to put even the least sophisticated consumer on notice that she would not be personally responsible for the alleged debt.

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