Consumer Finance Client Alert – November 2022

    By Frank A. Hirsch, Jr., Lisa Hudson Kim, Consumer Finance

    Reverse Mortgage Foreclosure Attack Survived Dismissal in the Rocket Docket, with Novel Claim of “Lacking a Present Right to Possession of the Property”
    United States District Court, E.D. Virginia (Richmond Division, The Honorable David J. Novak)
    MARY HILL, Plaintiff, v. NATIONSTAR MORTGAGE LLC, d/b/a CHAMPION MORTGAGE, LLC et al., Defendants.
    Civil No. 3:22cv108  
    I. Background Information
    Plaintiff, Hill’s claims concern the reverse mortgage Plaintiff executed on her home in Petersburg, Virginia in spring 2009.  Defendant, Nationstar Mortgage, LLC d/b/a Champion Mortgage (“Champion”) provided and serviced Plaintiff’s reverse mortgage, which was secured against Plaintiff’s home. Defendant, RAS served as substitute trustee for Champion, and conducted a foreclosure sale on Plaintiff’s home in late 2021.  Hill’s default for the reverse mortgage involved a flood insurance premium charged to her for $1,000, which she as a senior citizen on a fixed income could not pay in lump sum.  Plaintiff alleges RAS foreclosed on her home without providing proper notice under Virginia Code § 55.1-321(A). Plaintiff claims the foreclosure violated the Fair Debt Collection Practices Act (FDCPA), and RAS lacked a present right to possession of the property.
    Hill sought in her suit the relief of unwinding the foreclosure sale, (2) reinstating the repayment plan she claims she had in place to repay flood insurance premiums, (3) voiding the foreclosure sale and deeding Plaintiff’s Petersburg home back to her, (4) actual and statutory damages, (5) attorneys’ fees, litigation expenses and costs, and (6) punitive damages.
    A. Fair Debt Practices Act Claim
    In Count Three of her Amended Complaint, Hill alleges RAS violated Section 1692f(6)(A) of the FDCPA, which provides a debt collector may not take or threaten nonjudicial action to effect dispossession or disablement or property where there is no present right to possession of the collateral property through an enforceable security interest.  Plaintiff alleges RAS lacked a “present right to possession” of her Petersburg home when RAS, sold Plaintiff’s home at foreclosure.  Plaintiff claims the FDCPA leaves the phrase “present right to possession” undefined, so courts must look to state law to determine whether a debt collector properly asserted a present right to possession over dispossessed property.  Plaintiff argues Virginia Code § 55.1-321, lists information a foreclosing trustee must convey to a property owner before the trustee sells a property at foreclosure.  Hill alleges the Notice she received in October 2021 provided some, but not all information required, as it failed to inform her of the date of her late payment and “the total amount of principal, interest, costs, and fees due in arrears.”  In Plaintiff’s view, RAS violated the legal notice requirements. Then, in foreclosing without fulfilling Virginia Code § 55.1-321’s notice requirements, she argues RAS took nonjudicial action to effect dispossession of property with “no present right to possession” over the property, which violated § 1692f(6)(A) of the FDCPA.
    RAS responded with five (5) arguments in support of its Motion to Dismiss. First, RAS asserts Plaintiff’s FDCPA claim fails because “it is based on the false premise that a violation of [Virginia Code § 55.1-321] necessarily constitutes a violation of the FDCPA.”  Second, RAS argues Plaintiff cannot make out a claim under § 55.1-321, as RAS complied with all relevant provisions.  Third, RAS argues the Amended Complaint “fails to allege that RAS engaged in debt-collection activity” as required by the FDCPA.  Fourth, RAS argues two affirmative defenses to contract formation — Statute of Frauds and the consideration requirement — bar Plaintiff’s claims. Fifth, RAS argues “any claim Plaintiff may have for emotional distress damages is barred by the settled law”, “which holds that foreclosure upon one’s home cannot support a claim for intentional infliction of emotional distress.”
    B. Court’s Decision.  The District Court made five findings to comprise its decision:
    1. Plaintiff May Bring a FDCPA Claim for Defendant’s Alleged Failure to Comply with Virginia Code § 55.1-321; 
    2. Plaintiff Alleges Sufficient Facts to Support Claim Defendant Failed to Comply with Virginia Code § 55.1-321; 
    3. Plaintiff Alleges Sufficient Facts to Support Claim Defendant Subjected Plaintiff to “Collection Activity” under the FDCPA; 
    4. Defendant’s Affirmative Defenses under Contract Law Are Inapplicable; and
    5. Defendant’s Claim Plaintiff Fails to Allege a Claim for Intentional Infliction of Emotional Distress is Irrelevant.

    In the end, the Court denied RAS’ Motion to Dismiss the Amend Complaint.  Plaintiff’s Amended Complaint was allowed to proceed in litigation under the FDCPA.

    II. Take-Aways with Cautionary Roadmap to Creditors

    Hill provides several cautionary tales to creditors in the consumer finance arena.  Reverse mortgages in this jurisdiction remain under consumer protection scrutiny.  Non-judicial foreclosure sale proceedings conducted upon reverse mortgages require vigilance, caution, diligence, and particularity in notices, disclosures, procedures, and pleadings, as reverse mortgages appear to be disfavored financial products subject to potential scrutiny.

    In terms of statutory construction and interpretation, strict construction remains alive and well in the Rocket Docket.  The District Court was not convinced of the Defendant’s argument that Virginia Code § 55.1-321 does not apply to reverse mortgages with no express exemption in the statute and with no supporting case law legal authority provided by Defendant’s counsel.  The laws are interpreted in their plain language and say what they say without reading in text that is not included.

    With respect to the specific foreclosure notice and its alleged deficiencies pursuant to Virginia Code § 55.1-321, Plaintiff claimed the notice fell short on several fronts: (a) it provided no information related to the date of Plaintiff’s late payment; and (b) no information on the total amount of principal, interest, costs, or fees due in arrears.  A fulsome, detailed notice of foreclosure sale was alleged to be required by Plaintiff.  As notices are relatively inexpensive and easy to create, it is prudent to heed this guidance at the outset.

    The facts of Hill reveal three (3) different repayment plans of Plaintiff for flood insurance premium default(s) associated with her reverse mortgage, starting at $34.17/month, going to $100/month, then finally, a lump sum of $1,043.41.  Even so, once the flood insurance premium repayment was made by Plaintiff to the lender representative, the foreclosure notice was not withdrawn, and the foreclosure sale went forward.   As a result of same, breach of contract, fraudulent misrepresentation, no present right to possession of the property, and FDCPA violations were among the several attacks wielded by Plaintiff against the Defendants.  Perhaps a corrected notice or even a postponed foreclosure sale could have avoided later bigger issues and headaches. 

    According to the Court, in the end, “[t]he core issue remains whether the Court may look to state law to determine if a debt collector enjoyed a present right to possession over the seized property at the time of repossession.”  Procedurally, Plaintiff’s claims in Hill have overcome the initial threshold of dismissal.  Now, it remains to be seen what will develop substantively as the case proceeds in the Rocket Docket.

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.