Daniels v. Select Portfolio Servicing, Inc., No. 19-10204 (11th Cir. May 24, 2022)
The fact pattern sounds like something out of Gulliver’s travels. Statements are regularly sent to homeowners using the letterhead of a designated company who is claimed to be a servicer. Those statements are submitted because they are legally required to be sent to the homeowner. But they also are used as the foundation for claims to administer, collect or enforce the debt.
Such Statements of “account” misrepresent virtually everything — including the source of the statement, which is the work of a FINTECH third-party servicer working in this case on behalf of an investment bank and not SPS. Most of all they do not accurately describe the balance due on the alleged unpaid loans account and they are misleading because they imply such an account exists.
Any random survey of foreclosure cases on appeal in any jurisdiction reveals that there is always some component argument that the loan account is established, it is unpaid, it was a loan, and that someone is losing money because the homeowner did not make a scheduled payment.
This usually occurs because homeowners still believe the misrepresentations that were made to them at the time of “the closing” of what appeared to be a loan transaction. Hence, it never occurs to the homeowner or their lawyer to contest the original transaction or how it is reported later.
The Gulliver aspect of this is that lawyers who say they are representing banks who are trustees of trusts in which the loan account is owned and maintained have successfully argued that the statements are mandatory and not an attempt to collect a debt and therefore cannot result in liability under the Fair Debt Collection Practices Act (FDCPA) — even if the balance claimed as due is misstated or fraudulently represented.
This kind of hair-splitting is what sends homeowners screaming out of the courthouse with complete disrespect for the court system because they know what is right and they know that what just happened to them in court was wrong.
The 11th Circuit pierced through all of this in its analysis and decision, stating that the “servicer” can be liable for violations of the FDCPA by misstating material facts about the alleged claims in its statements and communications with the homeowner.
I should add that nobody addressed the elephant in the living room. Specialized Portfolio Services is owned and controlled by Credit Suisse which is (a) the source of credit to investment banks that arrange funding for “closings” with homeowners and (b) a co-underwriter of the certificates that are sold to pay back the loan.
Any such inquiry would result in the inevitable conclusion that these were not loan deals and that no lender or unpaid loan account receivable emerged from the transaction cycle.
As usual, the initial decision in Federal District Court was against the homeowner. The Circuit Court of Appeal reversed.
Daniels v. Select Portfolio Servicing, Inc., No. 19-10204, at *1 (11th Cir. May 24, 2022) (“Constance Daniels sued Select Portfolio Servicing under the Fair Debt Collections Practices Act, 15 U.S.C. §§ 1692 et seq., and the Florida Consumer Collection Practices Act, Fla. Stat. § 559.72, alleging that a series of monthly mortgage statements misstated a number of items, including the principal amount due. She claimed that, by sending her the incorrect mortgage statements, Select Portfolio violated the FDCPA’s prohibitions on harassment or abuse, false or misleading representations, and unfair practices. See 15 U.S.C. §§ 1692d, 1692e(2)(A), 1692e(10), 1692f(1). She also claimed that the statements violated the FCCPA’s prohibitions on harassment and on attempts to collect on debt that is not legitimate. See Fla. Stat. §§ 559.72(7), 559.72(9). The district court dismissed Ms. Daniels’ complaint with prejudice, agreeing with Select Portfolio that the mortgage statements in question were not communications in connection with the collection of a debt and therefore not covered by the FDCPA and the FCCPA.”)
Outcomes like that are entirely predictable when all parties agree that the claim of “loan” is true. But that only happens when the homeowner and forensic experts fail to recognize that the money paid at “closing” (if any payment was made at all) was not a loan but instead was a partial payment for launching a virtual loan account without which securitization could not exist.
By lying to homeowners about the true nature of the transaction, the sellers are able to convince homeowners to sign documents, promising to pay back the incentive payment. The addition of interest and fees just adds insult to injury.
Cases under my direction rarely result in a loss for the homeowner. By centering in on what must be obviously true in discovery, in QWRs, in DVLs, the homeowner finds a gold mine of violations of the FDCPA, TILA, FCRA, UDAAP etc.
Subsequent actions by homeowners naming the “Servicer” et al usually result in decisions for the homeowner —- but only after they have won the foreclosure case filed against the homeowner. This case opens the door to such actions even before the homeowner wins the foreclosure case.
The discovery process in such actions is more liberal than what homeowners find in the principal foreclosure action. So bringing the claims for statutory violations could produce enough information to assist in defeating the false foreclosure action.
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Neil F Garfield, MBA, JD, 75, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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