Bankruptcy Disclaimer Did Not Violate FDCPA

A district court in Michigan recently dismissed an FDCPA action, holding that a letter which included a bankruptcy disclaimer was for informational purposes only and did not violate the FDCPA.  Tyler v. Fabrizio & Brook, P.C., 2019 U.S. Dist. LEXIS 33450 (E.D. Mich. Mar. 4, 2019).  At first glance, the decision appears to be in conflict with the Sixth Circuit’s prior decisions in Glazer v. Chase Home Fin. LLC, 704 F.3d 453 (6th Cir. 2013) and Scott v. Trott Law, P.C., 2019 U.S. App. LEXIS 1015 (6^th Cir. Jan. 11, 2019).  In those cases, the Sixth Circuit concluded that foreclosure proceedings are debt collection.

The case centers around a single letter and a bankruptcy disclaimer.  In 2015, Tyler’s mortgage debt was discharged in bankruptcy.  In 2016, the bank engaged the defendant law firm to foreclose on the underlying real property.  The law firm then sent Ms. Tyler the following letter:

Dear Borrower(s),

BANK OF AMERICA, N.A., successor by merger to LaSalle Bank Midwest, N.A. fka Standard Federal Bank has retained our law firm to begin foreclosure proceedings on the above referenced property. As of the date of this letter, you owe $27,036.78. Because of interest, late charges and other charges that may vary from day to day, the amount due [*8]  on the day you pay may be greater, and an adjustment may be necessary after our client receives your payment.

Unless you notify this office within 30 days after receiving this notice that you dispute the validity of the debt or some portion of it, this office will assume that the debt is valid. If you notify this office in writing within 30 days of receiving this notice, this office will obtain verification of the debt or a copy of a judgment and mail a copy of it to you. If you request in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor if different from the current creditor.

Thank you for your attention to this matter.

Very truly yours,

Devara Walton

Real Estate Default Team

FABRIZIO & BROOK, P.C.

FABRIZIO & BROOK, P.C. IS THE CREDITOR'S ATTORNEY AND IS ATTEMPTING TO COLLECT A DEBT ON ITS BEHALF. ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE. HOWEVER. IF YOU ARE IN BANKRUPTCY OR HAVE BEEN DISCHARGED IN BANKRUPTCY, THIS LETTER IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENDED AS AN ATTEMPT TO COLLECTA DEBT OR AS AN ACT TO COLLECT, ASSESS, OR RECOVER ALL OR ANY PORTION OF THE DEBT FROM YOU PERSONALLY

Tyler at *7-9.

Tyler sued the law firm, claiming the letter violated 15 U.S.C. §1692e and asserted that the language “you owe $27,036.78” was misleading since the debt had been discharged in her bankruptcy. The law firm moved to dismiss, alleging that the letter was not an attempt to collect a debt, but instead for informational purposes only.

The court determined that the letter’s primary purpose was informational and to notify Tyler that foreclosure proceedings were about to start.  The court noted that the letter did not explicitly ask for payment, did not provide a due date for payment, did not provide a payment coupon and did not provide an address to mail payment.  Moreover, the court noted the letter contained a bankruptcy disclaimer which was on the same page as the remainder of the letter and “arguably the most conspicuous thing on the letter.”  Id. at *6.

The court’s decision is difficult to reconcile with its Circuit’s recent holding in Scott v. Trott Law, P.C.  in which the Sixth Circuit confirmed its view that foreclosure proceedings are debt collection.  The district court attempted to reconcile its decision by noting that the letter was not a required step in the foreclosure or actual foreclosure activity.  Instead, the court noted that “the letter was a courtesy to Tyler letting her know that foreclosure proceedings were about to start.  Its primary purpose to inform.” Id. at *5. 

Foreclosure law firms should continue to monitor developments in this area closely.  A split in the circuits as to whether non-judicial foreclosure constitutes debt collection may be resolved shortly by the Supreme Court.  Oral arguments were heard in January regarding this issue and a decision is expected this Spring.