Servicer’s Not Liable Under FCRA For Reporting Delinquencies Caused By Mortgagor’s Failure To Notify Servicer’s That He Made Tax And Insurance Payments Directly

The U.S. Court of Appeals for the Seventh Circuit held in Huckic v. Aurora Loan Services, 07-3826 (7th Cir. Nov. 2009) that two mortgage servicers did not violate FCRA when they reported delinquencies to a credit reporting agency about a mortgagor who had defaulted on his escrow payment obligations but failed to notify the servicers that he paid the tax and insurance payments on his own. The mortgage agreement permitted the mortgagor to pay taxes and insurance premiums himself but he had to notify and provide receipts of those payments to the servicers. He paid the bills but did not notify the servicers. Without knowledge of those payments, the servicers paid the taxes and insurance premiums themselves and repeatedly notified him that his monthly payments would increase by the prorated amount of those payments. When the mortgagor failed to pay the increased amount, the servicers reported him as delinquent to a consumer reporting agency. The borrower filed suit, alleging that the servicers violated the FCRA by furnishing information to the reporting agency that they knew or had reason to know was inaccurate. The Seventh Circuit upheld the lower court’s ruling in favor of the servicers, stating that the mortgagor’s failure to pay the increased payments was a failure to comply with his contractual obligation to ”promptly furnish receipts evidencing his [tax and insurance] payments,” and therefore that he was in default on his mortgage obligations. Therefore, the court ruled, the delinquency information provided to CRAs was accurate.
The Court also upheld the lower court’s ruling in favor of the servicers that they had failed to conduct a reasonable investigation of a consumer dispute. The current servicer had removed the negative information which had been reported so its obligations under FCRA had been met. The Court also rejected the argument that because the current servicer had ”constructive knowledge” of a delinquency reported by the prior servicer, it had an obligation to inform the prior servicer of the dispute. FCRA does not require an information furnisher to investigate information reported by other entities, however, and that the mortgagor himself had not notified the prior servicer of the dispute.

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