FDCPA and FCCPA: Temperatures rising

FDCPA and FCCPA (or similar state legislation) claims are getting traction across the country. Bank of America violated the federal Fair Debt Collection Practices Act (“FDCPA”) and the related Florida Consumer Collection Practices Act (“FCCPA”). (Doc. 26). The Goodin case is a fair representation of the experience of hundreds of thousands of homeowners who have tried to reconcile the numbers given to them by Bank of America and others.

In a carefully worded opinion from Federal District Court Judge Corrigan in Jacksonville, the Court laid out the right to damages under the FDCPA and FCCPA. The Court found that BOA acted with gross negligence because they continued their behavior long after being put on notice of a mistake on their part and awarded the 2 homeowners:

  • Statutory damages of $2,000
  • Actual damages for emotional distress of $100,000 ($50,000 per person)
  • Punitive damages of $100,000
  • Attorneys fees and costs

 

See http://www.leagle.com/decision/In%20FDCO%2020150623E16/GOODIN%20v.%20BANK%20OF%20AMERICA,%20N.A.

The story is the same as I have heard from thousands of other homeowners. The “servicer” or “bank” misapplies payments, negligently posts payments to the wrong place and refuses to make any correction despite multiple attempts by the homeowners to get their account straightened out. Then the bank refuses to take any more payments because the homeowners are “late, ” “delinquent”, or in “default”, following which they send a default notice, intent to accelerate and then file suit in foreclosure.

The subtext here is that there is no “default” if the “borrower” tenders payment timely with good funds. The fact that the servicer/bank does not accept them or post them to the right ledger does not create a default on the part of the borrower, who has obviously done nothing wrong. There is no default and there is no delinquency. The wrongful act was clearly committed by the servicer/bank. Hence there is no default by the borrower in any sense by any standard. It might be said that if there is a default, it is a default by Bank of America or whoever the servicer/bank is in another case.

Using the logic and law of yesteryear, we frequently make the mistake of assuming that if there is no posting of a payment, no cashing of a check or no acceptance of the tender of payment, that the borrower is in default but it is refutable or excusable — putting the burden on the borrower to show that he/she/they tendered payment. In fact, it is none of those things. When you parse out the “default” none of the elements are present as to the borrower.

This case stands out as a good discussion of damages for emotional distress — including cases, like this one, where there is no evidence from medical experts nor medical bills resulting from the anguish of trying to sleep for years knowing that the bank or servicer is out to get your house. The feeling of being powerless is a huge factor. If an institution like BOA fails to act fairly and refuses to correct its own “errors,” it is not hard to see how the distress is real.

I of course believe that BOA had no procedures in place to deal with calls, visits, letters and emails from the homeowner because they want the foreclosure in all events — or at least as many as possible. The reason is simple: the foreclosure judgment is the first legally valid instrument in a long chain of misdeeds. It creates the presumption that all the events, documents, letters and claims were valid before the judgment was entered and makes all those misdeeds enforceable.

The Judge also details the requirements for punitive damages — i.e., aggravating circumstances involving gross negligence and intentional acts. The Judge doesn’t quite say that the acts of BOA were intentional. But he describes BOA’s actions as so grossly negligent that it must approach an intentional, malicious act for the sole benefit of the actor.

 

PRACTICE NOTE ON MERGER DOCTRINE AND EXISTENCE OF DEFAULT:

It has always been a basic rule of negotiable instruments law that once a promissory note is given for an underlying obligation (like the mortgage contract), the underlying obligation is merged into the note and is suspended while the note is still outstanding. Discharge on the note would (due to the rule that the two are merged) result in discharge discharge of the underlying obligation. Thus paying the note would also pay the obligation. Because of the merger rule, the underlying obligation is not available as a separate course of action until the note is dishonored.

 

The problem here is that most lawyers and most judges are not very familiar with the UCC even though it constitutes state law in whatever state they are in. They see the UCC as a problem when in fact it is a solution. it answers the hairy details without requiring any interpretation. It just needs to be applied. But just then the banks make their “free house” argument and the judge “interprets a statute that is only vaguely understood.

The banks know that judges are not accustomed to using the UCC and they come in with a presumed default simply because they show the judge that on their own books no payment was posted. And of course they have no record of tender and refusal by the bank. The court then usually erroneously shifts the burden of proof, as to whether tender of the payment was made, onto the homeowner who of course does not  have millions of dollars of computer equipment, IT platforms and access to the computer generated “accounts” on multiple platforms.

This merger rule, with its suspension of the underlying obligation until this honor of the note cut is codified in §3-310 of the UCC:

(b) unless otherwise agreed and except as provided in subsection (a), if a note or an uncertified check is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instruments were taken, and the following rules apply:

(2) in the case of a note, suspension of the obligation continues until dishonor of the note or until it is paid. Payment of the note results in the discharge of the obligation to the extent of the payment.

thus until the note is dishonored there can be no default on the underlying obligation (the mortgage contract). All foreclosure statutes, whether permitting self-help or requiring the involvement of court, forbid foreclosure unless the underlying debt is in”Default.” That means that the maker of the promissory note must have failed to make the payments required by the note itself, and thus the node has been dishonored. Under UCC §3-502(a)(3) a hello promissory note is dishonored when the maker does not pay it when the footnote first becomes payable.

6 Responses

  1. One analogy, that makes perfect sense: once carrots are juiced, never a carrot again, same with Note, once its conversion into a stock, the note no longer exists and in accord with Longan and carpenter, the mortgage accompanies a note, when there is no more note, its a nulity: And UCC 3-501:

    UCC 3-501 is helpful… it allows the borrower to discontinue payment without dishonor

    UCC 3-501 requires a lender to “exhibit the note” when the lender makes demand for payment, and the borrower demands to see the note. Technically a demand for payment occurs every month, and it also occurs when a bank begins foreclosure proceedings.

    UCC 3-501 also requires a servicer to show authority to make a demand for payment, if it does not own the note, but is merely servicing it. In the event a noteholder or servicer will not exhibit the note or perform other legal requirements when requested to do so by the borrower, this UCC section allows the borrower to discontinue payments WITHOUT DISHONOR until such time as the noteholder or servicer complies with all laws or contract provisions.

    Also helpful is UCC 3-309. UCC 3-309 requires the lender go through certain steps to prove up a note. Original, copies are not acceptable

  2. Reblogged this on Deadly Clear and commented:
    The courts in the past, it appears, think that saving their pension funds is more important than saving homeowners or making good law.

  3. Will this open the door to Defendants’ ability to seek Damages and Punitive Damages (along with Attorney Fees) in fraudulent foreclosure cases that are dismissed or won at trial?

  4. Let’s talk about commercial liens being used on banks and how effective they are..

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