Mortgage Lenders & Servicers

Pursuant to 11 U.S.C. § 1322(b)(2), a Chapter 13 bankruptcy plan cannot modify the rights of a secured creditor whose claim is only secured by an “interest in real property that is the debtor’s principal residence.”  On December 6, the Eleventh Circuit held that this provision prevents the discharge of a mortgage in a Chapter 13 bankruptcy, regardless of whether the plan “provided for” the mortgage or whether the mortgagee filed a proof of claim.  The case is In re Dukes, No. 16-16513, 2018 WL 6367176 (11th Cir. Dec. 6, 2018). 

Factual Background 

In 2009, Mildred Dukes filed for Chapter 13 bankruptcy.  Her plan listed a first and second mortgage on her primary residence—both held by Suncoast Credit Union—and provided that payments would be made directly to Suncoast.  Suncoast filed a proof of claim for the second mortgage, but not the first.  Shortly after Dukes filed the plan, she requested and received permission to pay make her mortgage payments directly.  The bankruptcy court confirmed Dukes’ plan and, after she timely made all her payments under the plan, discharged “all debts provided for by the plan.” 

While the bankruptcy was ongoing, Dukes defaulted on her mortgages and, in 2013, Suncoast foreclosed under the second mortgage.  The credit union then sought a personal judgment against Dukes on the first mortgage.  To do so, Suncoast commenced an adversary proceeding in the bankruptcy case, seeking a determination that Dukes’ personal liability on the first mortgage had not been discharged. 

Chapter 13’s Antimodification Provision 

The bankruptcy court held that the mortgages were not discharged because they were not “provided for” by the plan and that, in any event, Suncoast’s right to a deficiency judgment could not be modified due to § 1322(b)(2).  After an unsuccessful appeal to the district court, Dukes took her case to the Eleventh Circuit. 

But the Eleventh Circuit affirmed, holding that there could “be no discharge of the mortgage given the antimodification provision in §1322(b)(2).” While the credit union did not object to the bankruptcy plan, this was not evidence that it consented to a modification of its rights “because the plan did not contain any modification that would be objectionable.”  Under the plan, the rights and obligations of both Dukes and Suncoast “remained solely governed by the original loan documents.” 

Dukes’ argument that the bankruptcy discharged her personal liability was likewise unpersuasive. Because state law allowed Suncoast to pursue a deficiency judgment against Dukes, any modification of that right would be prohibited by § 1322(b)(2). Likewise, the fact that it did not file a proof of claim for the first mortgage did not bar it from recovering, even though 11 U.S.C. § 502(b)(9) generally disallows claims that are not timely filed. Again, the antimodification provision in § 1322(b)(2) prevented such a modification of the credit union’s rights. 

Whether the Mortgages were “Provided For”

Judges Julie Carnes and Anne Conway went further, holding that the mortgages were not discharged because Dukes’ bankruptcy plan did not “provide for” them.  Drawing on the Supreme Court’s decision in Rake v. Wade, 508 U.S. 464 (1993), they held that a debt is not discharged if the Chapter 13 bankruptcy plan does “nothing more than mention” the debt. 

Because Dukes’ mortgages “remained governed solely by the original loan documents,” her Chapter 13 plan did not put Suncoast on notice that the plan might modify its rights. To the extent that Dukes’ plan was ambiguous as to whether it “provided for” the mortgages, Dukes, as the drafter of the plan, had to “pay the price.”

In the home mortgage industry, loans insured by the Fair Housing Authority (“FHA”) come with statutory prerequisites that are embedded in the loan contracts and that must be followed prior to foreclosure.  One such obligation put forth by the Department of Housing and Urban Development (“HUD”) is the “face-to-face meeting” requirement.  This meeting, however, is not required in several scenarios, including when the mortgaged property is not within 200 miles of the mortgagee, its servicer, or a branch office of either. 

The bounds and application of those two wordsbranch office bring us to a recent opinion handed down on December 18 by the U.S. District Court for the Western District of Virginia.  There, on a motion to dismiss for failure to state a claim, the Court defined a “branch office” as “one where some business related to mortgage is conducted” and dismissed the complaint with prejudice. 

The borrower had brought suit claiming improper foreclosure on her home because the lender failed to offer, attempt, or conduct a face-to-face meeting prior to foreclosing on the subject property.  The borrower alleged that the exemption did not apply because there was an office of the lender within 200 miles of the property.  It was undisputed that this office was not open to the public and did not provide services related to mortgage origination or servicing. 

The Court found that the borrower’s broad interpretation of a “branch office” to include any business office such as the office at issue here “defie[d] common sense” and was inconsistent with the purposes of the regulation and the face-to-face meeting requirement. 

To be congruent with the regulation and the meeting requirement, the Court held that a “branch office” must be both established and operated by the mortgagee, and must transact mortgage-related business. 

This definition is beneficial to the mortgage industry, especially in Virginia, by providing a limiting principle on an otherwise amorphous phrase.

On December 17, the United States District Court for the Eastern District of New York ruled in favor of a debt collector in Taubenfliegel v. Miller & Milone, P.C., granting a motion for summary judgment regarding the naming of the creditor in a collection letter.

Plaintiff Elizabeth Taubenfliegel alleged violations of Section 1692g of the FDCPA for failing to name the creditor in a debt collection letter which sought to collect a debt owed to a hospital. In the letter, the debt collector identified the hospital’s name in the subject line, stated that it represented the hospital in connection to her outstanding bill, and identified the patient name, hospital account number, and the date of service.

Taubenfliegel took issue with the letter for not using the word “creditor” when identifying the hospital.  The sole basis for her claim was that the letter “[m]erely nam[es] the creditor without specifically identifying the entity as the current creditor to whom the debt is owed.”

The Court disagreed, ruling that no reasonable jury could rule in favor of Taubenfliegel because the letter identified that the debt collector represented the hospital in connection with her outstanding bill. “These details, read together with the rest of the letter, compel the conclusion that defendant was collecting a debt on behalf of the creditor hospital.” The Court went on to state that the FDCPA does not require “magic words” for debt collectors to avoid liability and even the least sophisticated consumer would have been aware that the name of the creditor appeared in the letter.

The claims in this case appear to have less merit than most filed under the FDCPA, but it indicates that consumer protection attorneys are trying new and creative ways to try to hold debt collectors liable for their collection letters.

Troutman Sanders will monitor this decision for appeal.

A wave of lawsuits filed under the Fair Debt Collection Practices Act, especially in the Second Circuit, continues regarding disclosures of interest and fees in collection letters.  Consumers have complained about failure to warn of interest and fees continuing to accrue, as well as failure to disclose that interest and fees did not accrue.  The Second Circuit addressed these issues three times in the past two years in Avila, Taylor, and Derosa.  However, this has not deterred the consumer bar from bringing new claims over even the most careful disclosures.

In this most recent unsuccessful putative class action, consumer plaintiff Andrew Gissendaner sued Enhanced Recovery Company over a letter that listed interest and fees as “N/A.”  The letter also explained that “upon receipt of [Gissendaner’s] payment and clearance of funds in the amount of $2,562, [his] account will be considered paid in full.”

Gissendaner posited that “N/A” for interest and fees was misleading because “every debt accrues interest” and listing “N/A” for interest could lead a least sophisticated consumer to think that interest never accrued on his debt.  Enhanced Recovery argued in response that the statements were true because no interest or fees accrued since the debt was placed with Enhanced Recovery for collection.  Enhanced Recovery also emphasized that Gissendaner was ignoring the part of the letter which stated that if he paid a specific amount by a certain date, his debt would be satisfied.

In its opinion granting Enhanced Recovery’s cross-motion for judgment on the pleadings, the Western District of New York did not have any difficulty concluding that the Second Circuit’s decision in Taylor governed.  To be sure, Gissendaner admitted that no interest or fees were accruing and “supplied no convincing reason why the Court should find Taylor distinguishable.”  Accordingly, the Court held that the letter was not confusing and that Gissendaner’s claim lacked merit.

Continued development of favorable precedent, such as this case, is vital in helping to deter meritless “current balance” or “reverse-Avila” claims.

On November 21, in Sweely Holdings LLC v. SunTrust Bank et al., the Supreme Court of Virginia issued an opinion that is beneficial to the mortgage industry in Virginia because it upheld a bank’s right to foreclose, even if it could have pursued other options under a forbearance agreement.  In doing so, the Court affirmed settled principles of contract interpretation, where provisions are understood in light of their plain language and place within the contract as a whole. 

The case involved multiple parcels of real property as well as personal property, default on an $18.3 million loan, and the borrower’s allegation of breach of contract on a forbearance agreement, among other claims.  The bank demurred, the trial court sustained, and the Supreme Court of Virginia affirmed. 

The relevant facts are as follows:  The parties entered the forbearance agreement after the borrower’s default on a loan and threat of bankruptcy.  The agreement called for the borrower to make a set number of payments, and in the event the borrower failed to make the payments on the turnover date, the borrower would convey deeds to the parcels of real property as credit to the overall debt.  When the borrower failed to make one of the payments and the bank chose to foreclose on the parcel extinguishing a junior lien, litigation arose. 

At issue was whether the contract required the bank to accept these deeds in lieu of foreclosure or whether the bank had the discretion to proceed with the contract provisions on friendly foreclosure to protect its interest. 

The Court unanimously affirmed that the bank had discretion to proceed with foreclosure and did not breach the forbearance agreement by electing that route.  In reaching this conclusion, the Court noted that the forbearance agreement did not waive the bank’s right to foreclose but instead simply provided for a non-contested “friendly foreclosure” procedure.  Further, when interpreted as a whole, the contract provisions that required conveyance of the deeds plainly allowed the bank to pursue foreclosure, extinguishing previously undisclosed junior liens. 

The Court’s opinion is beneficial to the mortgage industry in Virginia where breach of contract claims sometimes arise out of forbearance agreements.

Effective July 1, 2018, Virginia’s unlawful detainer laws were amended to include new language beneficial to mortgagees and other foreclosure sale purchasers who seek to recover possession of foreclosed property by filing suit in a general district court.   

A new subsection of the statute, Virginia Code § 8.01-126(C)(4), codifies common law and confirms that a former owner who continues to occupy a property after foreclosure is a tenant at sufferance. The tenancy may be terminated by giving a written notice to vacate three days prior to the effective termination date.  Even more significantly, the language added to the statute confirms that the former owner may be held liable for payment of fair market rent from the date of foreclosure until the date the property is vacated, in addition to damages, reasonable attorneys’ fees, and court costs.   

Prior to this amendment, Virginia’s unlawful detainer statutes were drafted with traditional landlord-tenant cases in mind, resulting in inconsistent rulings when courts tried to apply these laws to post-foreclosure evictions.  For example, because they were typical in landlord-tenant evictions, courts routinely required foreclosure sale purchasers to give a five-day notice to vacate before possession would be awarded, even though this area of law was unsettled and no law clearly required it.  The amendment clarifies, codifies, and shortens the notice requirement.  

The Virginia Code also previously did not clarify whether rent and damages could be recovered by foreclosure sale purchasers, and, if so, when the rent or damage period started. As a result, courts would inconsistently start the “rental” period when the foreclosure sale was held, when the foreclosure deed was recorded, or when the notice to vacate was given. The recent amendment addresses these concerns, and did so in a way that favors the foreclosure purchasers by providing for accrual of rent from the date of foreclosure until the property is vacated, and permitting recovery of both rent and damages.  The attorneys’ fee provision is also new. 

This amendment to Virginia Code § 8.01-126, specific to post-foreclosure eviction cases initiated in a general district court, should bring more clarity to these types of cases going forward and make it easier for purchasers to recoup their losses when it makes sense to do so.  

It also raises the stakes for prior owners who contest unlawful detainer suits in order to remain in the foreclosed property for freeas long as possible. Foreclosure sale buyers, including REO lenders, may wish to consider seeking damages in these suits for strategic reasons other than the prospect of collection, such as to make it more difficult for prior owners to delay eviction through appeals.


Last month, Troutman Sanders reported on the proposed TRACED Act which would instruct the Federal Communications Commission to engage in rulemaking to protect consumers from receiving unwanted calls and text messages from unauthenticated phone numbers.  FCC Chairman Ajit Pai tweeted his approval for the bill, but the FCC is not waiting on Congress to fight robocalls.  On November 21, it released its final report and order on creating a reassigned numbers database.

According to the FCC’s press release, the final draft of the report and order would create a comprehensive database to enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number, thereby helping to protect consumers with reassigned numbers from receiving unwanted robocalls.

More specifically, this proposal changes the existing federal regulatory scheme by:

  • Establishing a single, comprehensive reassigned numbers database that will enable callers to verify whether a telephone number has been permanently disconnected, and is therefore eligible for reassignment, before calling that number;
  • Establishing a minimum aging period of 45 days before permanently disconnected telephone numbers can be reassigned;
  • Requiring that voice providers that receive North American Numbering Plan numbers and the Toll Free Numbering Administrator report on a monthly basis information regarding permanently disconnected numbers; and
  • Selecting an independent third-party administrator, using a competitive bidding process, to manage the reassigned numbers database.

Pai announced the items tentatively included on the agenda for the December Open Commission Meeting scheduled for Wednesday, December 12. Considering that robocalls are the number one basis of complaints filed with the FCC and the speed in which the issue has been addressed, it will come as no surprise if the proposal is passed at the meeting.

Troutman Sanders will continue to monitor this and related FCC’s rulemaking decisions.

The U.S. Court of Appeals for the Seventh Circuit recently held that a borrower failed to establish an actual harm resulting from his mortgage servicer’s response to a Qualified Written Request (“QWR”), thus affirming the lower court’s grant of summary judgment in favor of the servicer.  The use of QWRs is a common and growing tactic employed by borrowers as an attempt to thwart mortgage servicers who are lawfully exercising their rights in default situations.  Thus, this decision comes as welcome news that the courts may impose limits on use of technical QWR-related claims to frustrate collection efforts.  The case is Moore v. Wells Fargo Bank, N.A., No. 18-1564, 2018 U.S. App. LEXIS 31534, 2018 WL 5816723 (7th Cir. Nov. 7, 2018).

In November 2012, a Wisconsin state court entered a foreclosure judgment against Terrence Moore due to his longstanding payment default on a mortgage serviced by Wells Fargo.  Following multiple delays arising out of loss mitigation efforts and Moore’s bankruptcy filing, a sheriff’s sale was finally scheduled for October 2016. In August of that year, Moore sent a letter to Wells Fargo containing “twenty-two wide-ranging questions about his account.” Wells Fargo treated the letter as a QWR under the Real Estate Settlement Procedures Act (“RESPA”), acknowledged receipt, and indicated that a substantive response would be provided by the statutory prescribed deadline of September 30.

Two days prior to the response deadline – on September 28 – Moore filed suit in the district court, alleging that by failing to respond to the QWR, Wells Fargo had violated RESPA and Wisconsin law.  Moore claimed that he was harmed by this alleged failure because he was going to use the responses to plan his “next steps” in relation to the upcoming sheriff’s sale, but instead received “no answers.” Moore further claimed that Wells Fargo’s lack of response caused him to suffer emotional distress because he feared losing his home “unfairly, without knowing whether the lender had a right to foreclose.” Wells Fargo provided its substantive response as promised on September 30.

The district court granted Wells Fargo’s summary judgment motion, finding that Moore failed to provide evidence that Wells Fargo violated RESPA or state law, and failed to show how any alleged failure, even had it occurred, caused him harm.

As formulated by the Seventh Circuit, the central issue on appeal was “whether a borrower can recover damages under 12 U.S.C. § 2605(f) when the only harm alleged is that the response to his qualified written request did not contain information he wanted to help him fight a state-court mortgage foreclosure he had already lost in state court.”  The Court answered in the negative.

Although the district court found insufficient evidence that Wells Fargo violated RESPA, the appellate court nonetheless assumed for the purpose of its opinion that at least some part of Wells Fargo’s correspondence might have violated RESPA, but then went on to explain why, even if a violation had occurred, Moore failed to demonstrate any actual harm caused by Wells Fargo’s alleged failure to comply with the statute.

Specifically, the Court rejected Moore’s argument that the fees he paid to an attorney to review Wells Fargo’s response “could be a cost incurred as a result of an alleged violation” of RESPA, and it ruled that the mere fact of having to file suit does not constitute sufficient harm. The Court also rejected Moore’s claims for physical and emotional distress related to the upcoming foreclosure because his “stress had essentially nothing to do with any arguable RESPA violations.” Rather, “the obvious sources of his stress were the facts that he was not able to make timely payments toward his mortgage, that the lender had won a judgment of foreclosure, and that sale and eviction were imminent.”

In March 2018, the Predatory Lending Unit of the Virginia Attorney General Office’s Complaint against online lender Future Income Payments (“FIP”) began with the words of Sir Walter Scott: “what a tangled web we weave when we first practice to deceive.”[1] The lawsuit charged FIP with disguising unlawful loans – in excess of 183% per annum – through using “sales terminology” in an attempt to evade Virginia’s consumer lending laws.[2] On November 15, this web was untangled and resulted in a $50 million judgment against FIP including:

  • $20,098,160 in debt forgiveness for borrowers;
  • $31,740,000 as a civil penalty;
  • $414,474 in restitution;
  • $198,000 for costs and attorneys’ fees;
  • Injunctive relief preventing FIP from further violating the Virginia Consumer Protection Act; and
  • Declaratory relief that FIP’s agreements with Virginia consumers are usurious and illegal.

This swift action embodies Attorney General Mark Herring’s recent effort to vigorously enforce Virginia’s lending laws. In 2015, Herring established the Predatory Lending Unit, proclaiming the unit it to be the “first-of-its-kind,”[3] predicated upon investigating and prosecuting “suspected violations of state and federal consumer lending statutes, including laws concerning payday loans, title loans, consumer finance loans, mortgage loans, mortgage servicing, and foreclosure rescue services.”[4]

Since its creation, the Predatory Lending Unit has filed lawsuits and settled claims against at least five other online lenders alleged to be offering loans in excess of Virginia’s 12% interest ceiling.[5][6] These lawsuits have resulted in the recovery of more than $22 million in consumer relief.[7] Additionally, Herring’s Predatory Lending Unit intervened on behalf of a Virginia class action against CashCall, an online tribal lender.[8] Six days after Herring intervened, the matter was settled, resulting in 17,046 Virginians receiving $9,435,000 in consumer restitution and the forgiveness of more than $5,900,000 in outstanding debt.[9]

The Complaint against FIP indicates that the Predatory Lending Unit is keeping a keen eye on private litigation and other state regulatory efforts against online lenders with a nationwide footprint. Specifically, the Complaint detailed class actions filed in California, Florida, Alabama, and Massachusetts, along with regulatory settlements by the Massachusetts Attorney General and the New York Department of Financial Services — all against FIP. Even more, the Complaint quoted language from a Consumer Financial Protection Bureau action against FIP, emphasizing the underlying policy against usurious loans. See Complaint at p.4 (quoting CFPB v. Future Income Payments, LLC, No. SACV 17-00303-JLS (C.D. Cal. May 17, 2017), ECF No. 47) (“In the past few years, the income stream market has come under sharp scrutiny for allegedly marketing loans at undisclosed, exorbitant interest rates to vulnerable populations, including veterans and the elderly.”).

In light of the Predatory Lending Unit’s broad license to prosecute violations of Virginia’s lending laws, coupled with their cognizant awareness of independent private and regulatory actions, more regulatory enforcement and litigation in matters involving consumer lending should be expected from the Virginia Attorney General. Lenders must tread carefully and ensure their business practices comply with Virginia law.


[1] See Commonwealth of West Virginia ex rel. Mark R. Herring v. Future Income Payments, LLC et al., available at

[2] Id.

[3] Virginia Attorney General Press Release, “Attorney General Herring Launching Effort to Combat Predatory Lending, (March 26, 2015), available at

[4] Virginia Attorney General Press Release, ” Herring Warns Virginians About Dangers of Predatory Loans,” (March 7, 2017), available at

[5] See Virginia Code § 6.2-303.

[6] Virginia Attorney General Press Release, “Attorney General Herring Reaches Settlement with Internet Lender,” (October 25, 2017), available at; Virginia Attorney General Press Release, “Attorney General Herring Sues Allied Title Lending, LLC for Making Open-End Credit Loans to Violate Consumer Statutes,” (September 13, 2017), available at; Virginia Attorney General Press Release, “Attorney General Herring Reaches Settlement with Open-End Credit Plan Internet Lender Worth More Than $3 Million,” (November 30, 2017), available at; Virginia Attorney General Press Release, “Virginia Consumers to Receive $2.7 Million in Relief from Settlement with Internet Lender,” (February 7, 2018), available at


[8] See Attorney General of Virginia Intervenor-Complaint here:

[9] Virginia Attorney General Press Release, “CashCall to Refund Millions to Virginia Consumers Over Illegal Online Lending Scheme,” (January 31, 2017), available at

The Eastern District of Wisconsin issued a ruling dismissing an Equal Credit Opportunity Act case that asserted a novel claim regarding discrimination by a lender in requiring that the applicant remove disputes from his credit score before reviewing his application for a home equity loan. In Kolodzinski v. Pentagon Federal Credit Union, the Court granted PenFed’s motion to dismiss with prejudice, holding that the plaintiff consumer had not exercised any right under the Consumer Credit Protection Act, Title 15, Chapter 41 of the U.S. Code.

Plaintiff John Kolodzinski applied for a home equity loan with PenFed.  PenFed suspended the application when Kolodzinski’s credit report revealed five disputes made on other accounts, informing him that it could not proceed unless the disputes were removed.  Once Kolodzinski removed the disputes, his credit score dropped below the minimum threshold, and as a result his application was denied.  He then filed suit for a violation of 15 U.S.C. § 1691(a)(3), which holds that it is unlawful for a creditor to discriminate against an applicant “because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act].”  Kolodzinski contended that the Fair Credit Reporting Act and the Fair Debt Collection Practices Act (which are both a part of the Consumer Credit Protection Act) give him the right to dispute an account.  He contended that PenFed discriminated against him, in violation of ECOA, by requiring that he remove the disputes before proceeding with the application.

The Court found, however, that neither the FDCPA nor the FCRA confer on Kolodzinski a right to dispute debts; they simply ensure that any debts that he disputes are accurately reported.  Additionally, the Court found that his theory was inconsistent with the purpose of ECOA, and its implementing Regulation B.  Regulation B provides that “a creditor may restrict the types of credit history and credit references that it will consider, provided that the restrictions are applied to all credit applicants without regard to sex, marital status, or any other prohibited basis.”  12 C.F.R. § Pt. 1002, Supp. I, cmt. to Paragraph 6(b)(6).  PenFed elected to restrict the types of credit history it will consider to credit reports that are dispute free.  Kolodzinski did not allege that PenFed’s restriction was applied in a non-uniform way, and he therefore failed to establish that he was treated less favorably than any other applicant.

This case shows that the duties imposed on lenders by the FDCPA and the FCRA are not necessarily rights conferred on borrowers.  Andrew Buxbaum, Sarah Warren Smith, and Ethan Ostroff of Troutman Sanders represented PenFed before the Eastern District of Wisconsin.