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When does the Three Years Start to Run? How the “CHAIN OF CLAIMS” is Pure Wind

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This is not legal advice on your case. Consult a lawyer who is licensed in the jurisdiction in which the transaction and /or property is located.

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I’m in trial mode so I just wanted to post some articles that I found interesting. My own opinion is exactly what is expressed in this article about when consummation has occurred. And that is a question of fact that is neither obvious nor a closed matter when the true creditor’s identity has never been revealed and continues to be withheld. The banks seem to want to say that the borrower has no right to learn the identity of his or her creditor, on the one hand, but that the court must assume that a valid contract exists — even without any evidence as to who the party is on the lender side.
The banks are using the argument that it is obvious that a loan from 2004 can’t possible be subject to rescission because of the three year limitations. Being obvious is not a legal theory or procedure. If they want to say that consummation occurred on a certain date then they need to prove it. The contract must be complete for the loan contract to be enforceable. That is black letter law. If I somehow trick you into signing a note and mortgage that does not create a loan contract — unless I loan you money. “it’s obvious” is no defense.
They must show not that it is obvious but that it is true. AND they can’t do that because their paperwork talks about transactions that never existed nor were consummated starting with origination and continuing up the so-called chain of claims.They will fight for the “obvious defense” simply because they don;t have a creditor and therefore they don’t have standing to even raise the issue, which is why they regularly blow the 20 day limitation on either complying with TILA statutes or vacating the rescission which is the equivalent of a court order because it is effective by operation of law according to TILA, Scalia, and everyone else.
On equitable tolling, I think that is a trap. Technically I think it ought to apply but it seems fairly clear to me that arguments about equitable tolling will probably result in decisions for the lender side. I think that is wrong. But it is reality. Concentrating on equitable tolling is going to be tough going.
But challenging whether the loan was ever consummated is much easier because ultimately the only defense they have is to show the actual transactions in which the money was loaned, who loaned it, who sold it, who bought it along with proof of payment. This challenge reflects one of the main purposes of national policy as set forth in Federal Truth In Lending Act.
What the author is saying and I agree with him is that we can stick with industry standards on when the consummation occurred and challenge whether consummation ever occurred. Either way the remedies are virtually identical. Either it is rescinded or never happened.
That is application of the same industry standards in lending as applied to borrowers — if a borrower goes into a bank and wants to borrow money based upon receivables, notes, mortgages or anything else, the prospective lender is going to want to confirm the existence or nonexistence of the receivables or loan or note and whether the borrower asserts any defenses. It is called estoppel information. If the same bank wouldn’t accept partial information, (like “business records”) from us applying for a loan why should we accept anything less from them in enforcing the loan? They set the rules. Let them live or die with the standards they invented.
I like this one from a California lawyer 4 years ago:

It seems fair to say that the Courts are not willing to find a contractual obligation exists under State Law until a true and actual lender is identified. “Pretender lenders” – as Neil Garfield calls them – and intermediary “originators” who make false representations to the effect that they are “lending money”and are your “lender” should not be sufficient to set the three year TILA rescission clock in motion.  Until the real Wall Street entity, or Wall Street Investor, or true source of the table funded loan is identified, the loan should not be deemed “consummated” under TILA and the three year right to rescind should remain open until such disclosure is made.  That is TRUTH IN LENDING WHICH IS THE WHOLE POINT OF TILA IN THE FIRST PLACE.

Regulation X Loss Mitigation Rights MIght Survive Foreclosure Judgment

I’m on the run, but this article was sent to me and I thought I would share it. Sorry for not stating where the article is from. I just don’t know. But you will see the names of the authors.

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Ohio District Court Distinguishes Date of Foreclosure Action from Date of Foreclosure Sale When Applying New CFPB Mortgage Rules

August 21, 2015 by and

In Cooper v. Fay Servicing, LLC, 2015 WL 4470213 (S.D. Ohio July 17, 2015), the mortgagors sued the servicer of their real estate loan asserting claims for alleged violations of Regulation X relating to the loss mitigation process. Critical to this case was the timing of the loss mitigation process that resulted in the alleged Regulation X violations, the date of the foreclosure filing, and the date of the foreclosure sale. Specifically, the foreclosure proceeding was initiated on January 4, 2014, six days prior to the effective date of the CFPB’s new Mortgage Rules, while the alleged Regulation X violations occurred in December 2014. The foreclosure sale had not been completed.

Defendants argued that Plaintiffs were precluded from enforcing their Regulation X claims because the complaint initiating the foreclosure action was filed on January 4, 2014, six days prior to Regulation X’s January 10, 2014 effective date. Citing Campbell v. Nationstar Mortg., 2015 WL 2084023, Defendants argued that applying Regulation X would be impermissibly retroactive. However, the District Court distinguished Campbell, where both the loss mitigation process and foreclosure sale occurred before the January 10, 2014 effective date. Here, the foreclosure sale had not yet occurred.

Relying on White v. Wells Fargo Bank, 2015 WL 1842811 and Lage v. Ocwen Loan Servicing LLC, 2015 WL 631014, the District Court held that Plaintiffs’ Regulation X claims did not constitute an impermissible retroactive application of Regulation X because the language of 12 C.F.R. § 1024.41 contemplates that a party may seek to enforce his or her rights after a foreclosure complaint is filed, which was presumably during the effective time period of the new CFPB Mortgage Rules. Specifically, the District Court held that “while it would constitute retroactive application to apply 12 C.F.R. § 1024.41 to a case where the date of enactment [of the new Mortgage Rules] trailed the foreclosure sale, the regulation contemplates application after a foreclosure action has been brought.” Therefore, since Plaintiffs are permitted to assert their loss mitigation rights up to 37 days prior to the foreclosure sale (during the effective time period of the new Mortgage Rules), their Regulation X claims were not impermissibly retroactive.

Procedure vs Substance in Rescission

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The prime mistake amongst foreclosure defense attorneys is that (a) they are looking at substantive law only without studying procedural law and (b) they still can’t get over the “free house” myth.

If you are confronted by a court order signed by a real judge that you are absolutely convinced is wrong, what happens. ANSWER: Nothing. The order stands unless you do something about it. The “Something” is filing a pleading that establishes who you are, why you have a right to complain about the order and then what is wrong with the order. It might be motion to vacate or any number of other pleadings. If you think that the court violated your civil rights, you would probably bring a new lawsuit in Federal Court asking the Federal District Judge to vacate the state court order perhaps because the law denied due process or the way it was applied violated due process. The signed order (regardless of how offensive it is), at all times, during the contest, remains in full force and effect. Even if everyone is convinced you will win and get the order vacated, you must wait until the end of litigation to get it vacated — if the Judge agrees with you. The only exception is an emergency application for temporary restraining order, which has another whole set of procedural rules.

When a consumer sends a notice of rescission on a debt, it may have all kinds of things wrong on its face and in the circumstances under which it was sent. But the basic fact is that it was sent. That is all that is needed to make it the equivalent of the court order in the preceding paragraph. It is effective BY OPERATION OF LAW. Why is the court order effective? It is effective BY OPERATION OF LAW. AT THAT POINT IN TIME WHEN THE NOTICE OF RESCISSION WAS SENT, THE LOAN CONTRACT IS CANCELED, THE NOTE IS VOID AND THE MORTGAGE IS VOID — BY OPERATION OF LAW.

The banks and servicers are mounting a challenge to the inevitable and only ruling allowed regarding TILA rescissions. They don’t want to file a lawsuit or a petition for temporary restraining order to relieve the creditor of the duty to (a) cancel the note and return it to the borrower, (b) file the satisfaction of mortgage and (c) pay all money ever collected from the borrower and ever paid to third parties as compensation arising out of the origination (i.e., execution of loan documents). Execution of loan documents is NOT the same time as consummation.

Ask any closing agent. They get the funds after the documents are sent to the underwriting department where it is are reviewed again before the funds are released — hours, days and even months later. . The question is what underwriting department? It is the automated computerized set of standards maintained by LPS/Black Night and others who are distancing themselves from the table funded transaction in which the “lender” has engaged in behavioral that is “predatory per se” and which therefore does not entitle them to equitable relief (foreclosure) since they come to court with unclean hands. By layering the stack with multiple parties, none of whom have any interest in the loan, they create the illusion of a transaction with an originator who never spent a dime lending money to the borrower.

So we know that the identity is not going to be made available by the banks and servicers. That much is assured. The trusts are empty shells of trusts that exist on paper only, never did business and were never registered with any state or the federal government. They can’t get away from the simple truth that the ONLY parties entitled to payment are the investors whose money was used to fund or acquire loans — even though they didn’t know and would never have approved of the violation of the terms of the offer contained in the MBS prospectus, the Pooling and Servicing agreement, or anything else.

they are dancing around The issue. If this is handled correctly, the issue of when consummation occurred Will be a factual issue in dispute. That means they will have to raise it in a lawsuit against the borrower. And that means they are going to have to plead and prove standing. Since the rescission is effective as of the date of mailing, and effective means that the loan contract has been canceled (if it ever existed), the note and mortgage are void and the party who is actually the creditor has a duty to return the canceled note, file the satisfaction of mortgage, and pay the money to the borrower that was paid by the borrower and that was paid to third parties as compensation for the origination of the loan.

If these loans were actually legitimate, the strategy which I am suggesting would have little merit. The real creditor would allege that they were the lender to the borrower or that they had purchased alone from a party that owned the loan. They would be able to show Proof of that purchase in the form of a canceled check, a wire transfer receipt that could be verified or some other indication of the movement of money. But if the banks and servicers actually could produce the real creditor, there would be virtually no foreclosure litigation, As most of the defenses and attacks by the borrower would be moot.

The truth is that the loan contract probably never existed because the party on the note and mortgage was not the lender. This is a table funded loan which is predatory per se, under Reg Z. So you get them coming and going — either there was no consummation with any of the parties in the chain of people and entities that are relied upon by the collector or foreclosing party, or the transaction IS RESCINDED as of the date of mailing. and THAT means they can’t use the same arguments on standing as they do in foreclosure actions. In actions to vacate the rescission, the suing party cannot allege standing much less prove it by using the note and mortgage because those are now void instruments according to TILA, REG Z, and the Supreme Court in Jesinoski. Either way the remedy is the same, more or less, to wit: return of the canceled note, filing of satisfaction of mortgage (or having it nullified by a court) and payment of all money ever paid by borrower plus potential damages under consumer protection statutes.

It might be suspected that the three years has run, that the three days have run or that the rescission is faulty because of other restrictions in TILA. But it is nevertheless effective and requires no judge to rule upon its effectiveness. That puts the burden of pleading and the burden of proof completely on the party seeking to vacate the rescission. If they do nothing, the rescission stands. And as pointed out by Justice Scalia TILA rescission makes no distinction between disputed and undisputed recessions. So even if a faulty rescission is nonetheless effective, Which means that the creditor has 20 days in which to satisfy the three duties under TILA rescission. If nobody files a lawsuit to vacate the rescission within 20 days of receipt of the notice of rescission (and remember that under Dodd Frank notice to one is notice to all), then the rescission is final and any of the factual issues that you would have expected to arrive on a faulty rescission would have been waved. This is a procedural argument but there is no doubt that it is correct, especially with the wording of the opinion in Jesinoski.

The important thing to remember is that the rescission is effective upon mailing which means that it is the same as a court order bearing the date of mailing of the notice of precision. If you think of it that way it may be easier to understand the strategy that I am suggesting here. Since there does not appear to ever have been a lawsuit by any bank seeking to vacate a TILA rescission, I am assuming that they cannot come up with a creditor who actually has standing. And that is because they stole the money in the first place from investors who are the ONLY parties entitles to be paid — but ONLY under some equitable theory of unjust enrichment, most assuredly not secured in their claim.

5th Circuit Revives FDIC Suit Against Deutsch and Goldman Sachs

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see http://www.jdsupra.com/legalnews/5th-circuit-revives-fdic-s-suit-against-63041/

see 5thCircuitOpinion

From the Western District of Texas, a place where Banks usually prevail, came a crushing blow to their hopes of evading responsibilities for securities fraud and fraudulent practices involved in the sale of mortgage backed securities. Essentially, the banks were arguing that the true facts that they had withheld or lied about could be covered up until the statute of limitations ran out. The trial court agreed. The circuit court disagreed.

Significant quotes —

The FDIC filed two separate suits against the Appellees and other financial institutions on August 17, 2012.2 The FDIC’s lawsuit alleged claims under the Securities Act of 1933 and the Texas Securities Act.3 The FDIC alleged that, in underwriting and selling the residential mortgage backed securities to Guaranty, the Appellees “made numerous statements of material fact about the [securities] and, in particular, about the credit quality of the mortgage loans that backed them” that “were untrue.” The FDIC also alleged that the Appellees “omitted to state many material facts that were necessary in order to make their statements not misleading.” [Editor’s Note: For example that the money from the investor never went where it was intended — to a REMIC Trust]

Senator Riegle, one of FIRREA’s sponsors, stated:

Although these provisions have attracted little attention from the media, they are of the utmost importance. Extending these limitations periods will significantly increase the amount of money that can be recovered by the Federal Government through litigation, and help ensure the accountability of the persons responsible for the massive losses the Government has suffered through the failures of insured institutions. The provisions should be construed to maximize potential recoveries by the Federal Government by preserving to the greatest extent permissible by law claims that would otherwise have been lost due to the expiration of hitherto applicable limitations periods. See Electrical Workers v. Robbins & Myers, Inc., 429 U.S. 229, 243 (1976); Chase Securities Corp. v. Donaldson, 325 U.S. 304, 311–16 (1946).

Explaining the policies underlying the two types of statutes, the Court stated that “[s]tatutes of limitations require plaintiffs to pursue ‘diligent prosecution of known claims,’” id. at 2183 (quoting Black’s Law Dictionary 1546 (9th ed. 2009)), and “promote justice by preventing surprises through [plaintiffs’] revival of claims that have been allowed to slumber until evidence has been lost, memories have faded, and witnesses have disappeared,” id. (alteration in original) (quoting R.R. Telegraphers v. Ry. Express Agency, Inc., 321 U.S. 342, 348–49 (1944)).

That Study Group Report was commissioned after Congress passed CERCLA, and Congress directed the study group to “determine ‘the adequacy of existing common law and statutory remedies in providing legal redress for harm to man and the environment caused by the release of hazardous substances into the environment,’ including ‘barriers to recovery posed by existing statutes of limitations.’” Id. at 2180 (quoting 42 U.S.C. § 9651(e)(1), (3)(F)). The resulting report recommended, inter alia, that “all states that have not already done so, clearly adopt” the discovery rule for accrual of causes of action due to the “long latency periods in harm caused by toxic substances.” Id. at 2180–81. “The Report further stated: ‘The Recommendation is intended also to cover the repeal of the statutes of repose which, in a number of states[,] have the same effect as some statutes of limitation in barring [a] plaintiff’s claim before he knows that he has one.’” Id. at 2181 (alterations in original). [Editor’s Note: The court is using precedent on release of physically toxic substances to decide a case based upon financially toxic instruments]

But this is not the usual case. The FDIC Extender Statute did not create a new statute of limitations merely for the ordinary reasons, but also “to give the [FDIC] three years from the date upon which it is appointed receiver to . . . . investigate and determine what causes of action it should bring on behalf of a failed institution.”

“The purpose of FIRREA’s preemption of state statutes of limitations is to give the [FDIC] three years from the date upon which it is appointed receiver to . . . . investigate and determine what causes of action it should bring on behalf of a failed institution.” Barton, 96 F.3d at 133; UBS, 712 F.3d at 142 (“Congress obviously realized that it would take time for this new agency to mobilize and to consider whether it wished to bring any claims and, if so, where and how to do so. Congress enacted [the FHFA Extender Statute] to give FHFA the time to investigate and develop potential claims on behalf of [Fannie Mae & Freddie Mac]—and thus it provided for a period of at least three years from the commencement of a conservatorship to bring suit.”).

Wells Fargo Menu of Mayhem

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In one of my cases where we are seeking punitive damages against Wells Fargo I had occasion to create a list of times where Wells Fargo has been in the news for behavior that the Courts described as “clandestine” or “illegal” or “arrogant” or “shameful” or “shocking.” It seems that even $3 million verdicts or orders against Wells Fargo are just a cost of doing business. It apparently remains in their interest to pursue illegal foreclosures, luring homeowners into default, and misusing information that they never should have had in the first place because they were neither owner nor servicer of the loan.

Most of these are articles posted by livinglies when the judge’s order was received. I’d like to see more. And remember, if you have settled with Wells Fargo under seal of confidentiality, make sure you are not violating the terms of your settlement agreement before you send us anything here.

I invite people to send additional records of where a Court has ruled against Wells Fargo for misbehavior concerning loan origination, collections, enforcement, modification and foreclosure. Send your entries to neilfgarfield@hotmail.com. In the subject matter line please write “Wells Fargo Order.”

Here is my list so far:

Wells Fargo Skewered by Federal Judge For Forgery as a Pattern of Conduct

Wells Fargo Punitive Damages Affirmed in Lousiana: $3.1 Million

· Wells Fargo Is Sanctioned For Role in Mortgage…

http://www.wsj.com/articles/SB120952684628255551

Apr 29, 2008 · A judge has penalized Wells Fargo & Co., … imposing a $250,000 sanction against it. … a Massachusetts federal bankruptcy judge, …

Wisconsin BKR Judge Orders Wells Fargo to Disgorge Payments It Received

Fonteno v. Wells Fargo Bank, N.A. California Foreclosure Sale Reversed

Wells Fargo Manual Serves as Basis for Deeper Discovery

Judge Zloch Deals Blow to Wells Fargo and Ocwen on Trial by Jury

Quite a Stew: Wells Fargo Pressure Cooker for Sales and Fabricated Documents

Damages Rising: Wrongful Foreclosure Costs Wells Fargo $3.2 Million

The Rush to Foreclosure: Wells Fargo Loses the Argument on Trial Modifications

Mortgage Lenders Network and Wells Fargo Battled over Servicer Advances

Wells Fargo Attempting to “offer” Modifications But Refusing to Put it in Writing

Federal Bankruptcy Judge Explains Wells Fargo Servicer Advances

Federal Judge Slams Wells Fargo for Violation of Debt Collector’s Act in Florida

Wells Fargo: Insured Mortgages Still Being Foreclosed After Death Benefit is Paid to Bank

LAWYER BONANZA!: Wells Fargo Foreclosing on Homeowner Who Made all Payments and Paid Extra

Wells Fargo Wrongful Foreclosure Kills Elderly Homeowner?

FDCPA Strikes Again: West Virginia Slams Wells Fargo

Fagan: Defeats Wells Fargo on Judicial Notice

Wells Fargo Sued For Intentionally Underwriting and Submitting Bad Mortgages on Insurance Claims

Wells Fargo to Pay up to $50,000 per person in bias case against blacks, Hispanics

Wells Fargo Compounds Misbehavior with Retaliation

Lawyers Take Note: Wells Fargo Slammed With $3.1 Million Punitive Damages on One Wrongful Foreclosure

Fed Orders Ally, BOA, Citi, JPM, Wells Fargo to Pay $766.5 Million in Sanctions

NEVADA ATTORNEY GENERAL (Catherine Cortez Masto) TO FILE CRIMINAL CHARGES AGAINST WELLS FARGO FOR FORGERY

FEDERAL RESERVE FINES Wells Fargo $85,000,000.00 for Falsifying Information on Loan App

HAMP: Treasury Department Penalizes Bank of America, JPMorgan Chase and Wells Fargo on Sham Modifications

Tier 2 Yield Spread Premium Confirmed: Wells Fargo to Pay $11 Million to Investors

Wells Fargo Loses Bid to Dismiss Mod-Fraud Claims

ILLINOIS CLASS ACTION VS. WELLS FARGO FAILING TO PROCESS HAMP MODIFICATIONS

Wells Fargo Admits Errors in 55,000 cases: Tries to Minimize Impact

Intricate Cloaks for Securitized Transaction – Wells Fargo and Thornburg

NY JUDGE AWARDS $155,092.00 TO Pro Se HOMEOWNER for Wells Fargo Trespass

After 8 Lawyers turned Her Down — Jury Awards $1.25 million to Borrower In Suit Against Wells Fargo

WELLS WHISTLEBLOWER REVEALS BLACK HOLE FOR DOCUMENTS AND PROCEDURES

 

OCC Finds 6 Banks Have Not Complied With Consent Orders

 

Fannie and Freddie Slammed by Massachusetts AG

 

MASS SUPREME COURT CLARIFIES: YOU CAN’T SELL WHAT YOU DON’T OWN — MISSING HOMEOWNER WINS CASE WITHOUT KNOWING IT

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From Wall Street Journal:

Wells Fargo Is Sanctioned For Role in Mortgage Woes

By Amir Efrati

Updated April 30, 2008 12:01 a.m. ET

Several federal bankruptcy judges recently have lambasted mortgage companies for their treatment of consumers at risk of losing their homes. But industry players in the below-the-radar role of “trustee” in the mortgage chain — typically big financial institutions — have mostly gone unscathed.

Deutsch Mystery Settlement Gives Clues to What Really Happened

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Scores of investor lawsuits have been settled under seal of confidentiality. The net result is that the investors get paid, the big banks pay the tab, and nobody knows how or who is accountable for the money received. Consider this: If you are in court and the allegation by the “forecloser” is that US Bank is the foreclosing party as trustee for a trust, you might be making assumptions that are not appropriate:
  1. Did the Trust ever exist in actuality or was it just a figment of imagination created on paper? This is the key question rather than the next question because all the evidence suggests that investor money never made it into the paper trust and thus there could never have been acquisition of loans by the trust because it had no money to do so.
  2. Did the Trust ever operate as a going concern (within the 90 day limitation imposed by the IRC REMIC provisions).
  3. Does the Trust still exist?
  4. What payments did the beneficiaries receive. All evidence points to them receiving “servicer advances” (which are neither advances nor from the servicer) PLUS receiving the settlement money from the investment bank that sold them the bogus, empty mortgage bonds.
  5. What is the balance due to the investors a/k/a beneficiaries of the trust?
  6. How is that balance allocated to amounts due from borrowers?
  7. Do the borrowers actually owe any money to the Trust?
  8. Do the borrowers actually owe money to the trust “investors.”
  9. If the Trust either never existed in the real world or has ceased to exist or the trust investors/beneficiaries have been paid all or part of the money owed to them from both borrowers and from third parties (i.e., servicers and investment banks), was there a ?transfer” of the debt, the note and the mortgage to the investment bank that settled with investors, why is US Bank, “trustee” still showing up as the foreclosing party?
  10. If the actual owner of some debt is not any of the parties appearing in court, then how can modifications actually be properly processed?

Here are some interesting quotes from the article from housing wire.

No details about the settlement were disclosed in the motion, with the motions only stating that the two were settling.

In its initial complaint, MassMutual alleged that Deutsche Bank’s representations were what convinced the insurance giant to buy $125 million worth of securities. The bank, the argued in their filing, was the “exclusive source of information” regarding the loans that backed the securities.

The company later discovered that Deutsche Bank allegedly disregarded their own underwriting standards, and had purchased loans issued to borrowers regardless of the ability to repay. (e.s.)

Deutsche Bank argued that both the allegations were untrue, and that MassMutual should have known that there was something wrong with the securitizations. (e.s.) {Editor’s Note: The importance of this cannot be over-stated. It is last part of the Four Dog Defense. Deutsch is saying “OK, the mortgage backed securities were fake, they did hurt you, but it was your fault for not knowing we were cheating you.”}

My main concern though is how this money is allocated from hundreds of billions of dollars of settlements to the illusory loan portfolios allegedly owned by specific trusts. If the investors are the only ones that could be considered “creditors” or something equivalent to a creditor or claimant, then basic double entry bookkeeping says there must be a corresponding reduction of what is owed TO THOSE CREDITORS OR CLAIMANTS. And THAT means that the notice of default, notice of right to reinstate, notice of acceleration and notice of sale or foreclosure lawsuit are all wrong. It also probably eliminates the mortgage as a viable instrument without rescission or attacking the initial transaction under a claim of nullification.

11th Circuit: Proof of Claim is Attempt to Collect a Debt. If it’s late it’s barred by FDCPA

Just a moment while I am on the run. Hat tip to my clients who sent me this. It might be time to take a harder look at making claims under FDCPA.

In Crawford v. LVNV Funding, LLC, the Eleventh Circuit held that the creditor violated the Fair Debt Collection Practices Act (“FDCPA”) by filing a proof of claim to collect a debt that was unenforceable because the statute of limitations had expired.

 In Crawford, a third-party creditor acquired a debt owed by the debtor from a furniture companyIn affirming the bankruptcy court’s dismissal, the district court found that the third-party creditor did not attempt to collect a debt from the debtor because filing a proof of claim is “merely ‘a request to participate in the distribution of the bankruptcy estate under court control.’ Furthermore, the district court found that, even if the third-party creditor was attempting to collect the debt, the third-party creditor did not engage in abusive practices. On appeal, the Eleventh Circuit reversed, holding that the third-party creditor violated the FDCPA by filing a stale claim in the bankruptcy court.

Circuit courts are split as to whether the Bankruptcy Code displaces the FDCPA in the bankruptcy context. Some Circuits have concluded that the Bankruptcy Code displaces the FDCPA in the bankruptcy context. The Second Circuit held that the FDCPA is not needed to protect debtors who are already under the protection of the bankruptcy court, and there is no need to supplement the remedies afforded by bankruptcy itself.

In Crawford, Eleventh Circuit ruled against the creditor based on FDCPA without discussing the preemption issue in this case. The Eleventh Circuit noted that Congress enacted the FDCPA in order “to stop ‘the use of abusive, deceptive, and unfair debt collection practices by many debt collectors.’” In reaching its decision, the Eleventh Circuit stated that the FDCPA regulates the conduct of debt-collectors, which is defined as any person who “regularly collects … debts owed or due or asserted to be owed or due another.”.   The creditor did not dispute that it was a debt collector and thus subject to the FDCPA.

The Court referred to the Section 1962(e) of the FDCPA, which “provides that ‘[a] debt collector may not use any false, deceptive or misleading representation or means in connection with the collection of any debt.’” Because Congress did not provide a definition for the terms “unfair” or “unconscionable,” the Court adopted a “least-sophisticated consumer” standard to determine whether the creditor had violated FDCPA.

In Crawford, the creditor filed a time-barred proof of claim because “[a]bsent an objection from either the Chapter 13 debtor or the trustee, the time-barred claim is automatically allowed against the debtor pursuant to 11 U.S.C. § 502(a)-(b) and Bankruptcy Rule 3001(f).” Indeed, in Crawford, neither the trustee nor the debtor objected to the claim in the bankruptcy case, and the trustee disbursed the money to the creditor. The  Eleventh Circuit reasoned that a debt collector’s filing of a time-barred proof of claim, similar to the filing of a stale lawsuit, creates the misleading impression to the debtor that the debt collector can legally enforce the debt.   Therefore, the Eleventh Circuit found that under the “least-sophisticated consumer” standard, the creditor’s filing of a time-barred claim in debtor’s bankruptcy Chapter 13 case was “unfair,” “unconscionable,” “deceptive,” and “misleading” within the broad scope of the FDCPA

The Crawford decision allows debtors and their attorneys to receive damages from debt collectors who file time-barred proof of claims. Congress provided consumer debtors with a private right of action, rendering “debt collectors who violate the [FDCPA] liable for actual damages, statutory damages up to $1,000, and reasonable attorney’s fees and costs.”

Creditors should be especially careful to not file any time-barred proof of claims in jurisdictions that allow FDCPA claims. Moreover, if the debtor files a bankruptcy proceeding in a jurisdiction where FDCPA claims are allowed, he should review every proof of claim filed in his estate. If a creditor files a time-barred claim, the debtor should object to the claim. Furthermore, the debtor should file an action against the creditor under the FDCPA.

Even if the debtor or the trustee failed to object to the time-barred claim and paid off the stale debt, as was the case in Crawford, the debtor should be able to recover under the FDCPA. Alternatively, if the debtor files a bankruptcy proceeding in a jurisdiction where FDCPA claims are unavailable, the debtor should review filed proof of claims and object to any stale claims despite the unavailability of statutory damages and attorney’s fees. Whether or not FDCPA claims are available in a jurisdiction, debtors should be vigilant since creditors may continue to file stale proof of claims because the debt they are able to recover may be more than the damages they pay out in violation of the FDCPA.

See generally Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014).

See Id. at 1257.

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