Mortgage Lenders & Servicers

If a recent proposal is any indication, the Federal Housing Finance Agency (“FHFA”) may feel more comfortable with the status quo than with permitting Fannie Mae and Freddie Mac (“the Enterprises”) to explore the benefits of using VantageScore 3.0, a credit-scoring alternative jointly created by the nationwide consumer reporting agencies, or “CRAs.”

Last month, the FHFA announced a proposal that establishes standards and criteria for the Enterprises to adopt new credit-scoring models. This proposal satisfies a requirement embedded in Congress’s recent Economic Growth, Regulatory Relief, and Consumer Protection Act requiring the FHFA to establish such standards. For some observers, this was a specific push by Congress to allow the Enterprises to consider credit-scoring alternatives such as VantageScore 3.0.

On its face, the FHFA’s proposed rule creates a straightforward, four-step process by which the Enterprises can evaluate and adopt alternative credit-scoring models. Further within the proposal, however, the FHFA proposes to “prohibit an Enterprise from approving any credit score model developed by a company that is related to a consumer data provider through any common ownership or control, of any type or amount.” The proposal would also require the Enterprises to evaluate “potential conflicts of interest and competitive effects” of a potential credit-scoring model. To support these positions, the FHFA expressly discussed the relationship between the owner of VantageScore 3.0 and the CRAs. It further expressed its concern that a credit-scoring model with vertical integration with a CRA could offer its services “more cheaply.”

Despite the stated prohibition against the Enterprises’ use of a credit-scoring model with ownership ties to a consumer data provider, the proposal could still be amended as the FHFA considers the feedback it receives from industry participants during the comment period. Additionally, a recent change in the director of the FHFA may further impact the final rule. Industry participants who desire to see amendments to the proposal should consider submitting comments to the FHFA prior to the comment period closing on March 21, 2019. As always, Troutman Sanders stands available to assist industry participants with this and other developments within the financial services landscape.

On January 25, the Consumer Financial Protection Bureau posted a list of four frequently asked questions, or “FAQs,” clarifying some aspects of the TILA-RESPA Integrated Disclosure Rule (TRID Rule). 

The TRID Rule, which applies to many consumer mortgage loans, consolidated the various disclosure forms that were required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) into two forms: (1) a Loan Estimate that must be given to a borrower by the third business day after the lender receives an application; and (2) a Closing Disclosure that must be given at least three business days before consummation.  

The first three FAQs seek to clarify a lender’s obligations if there is a change to the disclosed loan terms after the Closing Disclosure has already been given to the consumer.  They explain that unless the change falls into three specific categories, the lender can provide a corrected Closing Disclosure at or before the scheduled closing without having to push the closing out an additional three business days.  However, if the change (i) results in the APR becoming inaccurate, (ii) results in inaccuracies in the loan product information required by the TRID Rule, or (iii) adds a prepayment penalty to the loan, the corrected Closing Disclosure must be given at least three business days before consummation.  Thus, these FAQs confirm that material changes to the loan terms after a Closing Disclosure has already been given may require a closing to be rescheduled in order to comply with the TRID Rule’s threebusinessday requirement. 

The fourth FAQ confirms that a lender who uses the CFPB’s most current model forms and properly completes them with accurate content will be deemed in compliance with the regulatory requirements.  This “safe harbor” applies even if the model forms have not yet been updated by the CFPB to reflect recent rules and regulations.  

Despite this attempt to resolve some of the gray areas in the regulations, mortgage lenders still should exercise caution before relying on these FAQs.  As the FAQs expressly note, they are not a substitute for reviewing the applicable laws and regulations, nor do they have the weight of a law or an officially promulgated agency interpretation.  Lenders should always consult legal counsel if they have any questions or concerns about the extent of their obligations under the TRID Rule or any other federal regulations.  


The United States District Court for the District of New Jersey ruled in favor of a debt collector in Martinez v. Diversified Consultants, Inc., granting a motion to dismiss the plaintiffs’ class claims regarding a collection letter that contained the collector’s phone number.

Plaintiff Waleska Martinez alleged violations of Section 1692g of the Fair Debt Collection Practices Act for containing the debt collectors’ phone number.  Martinez argued that the collection letter “would cause the least sophisticated consumer to become confused as to what she must do to effectively dispute [a] debt … .”  In short, she claimed that the phone number “overshadowed or contradicted” the validation notice that a consumer must notify the debt collector in writing within thirty days if she disputed the debt.

The Court disagreed, ruling that the collection letter contains the required validation notice under Section 1692g(a) and that the substance of form does not overshadow or contradict the validation notice. Specifically, the Court ruled several factors were not met to show that the phone numbers overshadowed the validation notice.  First, the letter did not instruct the consumer to call the number.  Second, the phone number was not in bold or large typeface which would gain more attention than other text.  Third, the mailing address was found on multiple locations of the letter to aid a consumer in mailing a written dispute.  Finally, the validation notice was not hidden or relegated to the back side of the collection letter.   For these reasons, the Court dismissed the complaint without prejudice.

The claims in this case appear to have less merit than most filed under the FDCPA.  However, it appears 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 or for a new complaint filed by Martinez.

2018 was a busy year in the consumer financial services world. As we navigate the continuing heavy volume of regulatory change and forthcoming developments from the Trump administration, Troutman Sanders is uniquely positioned to help its clients successfully resolve problems and stay ahead of the compliance curve.  

In this report, we share developments on consumer class actions, background screening, bankruptcy, FCRA, FDCPA, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and TCPA. 

We hope you find this helpful as you navigate the evolving consumer financial services landscape.

Access full report here.


The United States Court of Appeals for the Sixth Circuit has issued an opinion that sheds light on whether foreclosure proceedings constitute debt collection.  In Scott v. Trott Law, P.C., the Court held that under the Fair Debt Collection Practices Act, a debt collector had a duty to ensure that foreclosure proceedings were stopped after receiving a dispute letter from the borrower.

Trott Law, P.C. was retained by a national lender to manage foreclosure proceedings on a delinquent mortgage.  Upon learning that his home was being referred to foreclosure, the borrower, Kevin Scott, sent Trott a letter disputing the validity of the debt.  Trott received Scott’s dispute letter on October 11, 2016.  At the direction of Trott, foreclosure notices were posted three days later at the property and in a local newspaper.

Scott subsequently filed a complaint against Trott arguing that it should have ceased debt collection activity after receiving his dispute letter.  Scott argued that Trott failed to do so because after receipt of the dispute letter, it allowed the foreclosure notices to be published, failed to cancel the sheriff’s sale, refused to communicate with Scott, and opposed Scott’s motion for temporary injunction.  Trott responded by arguing that after it received Scott’s dispute letter, it did not take any additional actions towards debt collection.  Trott’s theory was that because it was not the party committing the act of publishing the foreclosure notices, it effectively ceased debt collection activities after receiving the dispute letter.

The district court ruled in favor of Trott, finding that under the FDCPA Trott had ceased debt collection activities after receiving Scott’s dispute letter on October 11.  The district court agreed with the argument that because Trott itself did not perform any additional acts in pursuit of foreclosure, it had ceased debt collection activities.

The Sixth Circuit overturned the district court’s decision, finding that Trott had a duty to ensure that the foreclosure sale was completely stopped until it obtained verification of the debt.  In other words, a dispute letter must “stop the clock” on foreclosure proceedings.  To allow the essential elements of foreclosure to proceed, the Court reasoned, “would render the dispute letter a nullity.”

This is a significant ruling by the Sixth Circuit in that it expands the umbrella of what constitutes debt collection.  Although the debt collector in this case did not take any additional steps towards foreclosure after receiving the dispute letter, this decision imposes a duty to take steps in the opposite direction – to prevent the foreclosure from occurring.

In a recent opinion, the U.S. Court of Appeals for the Fifth Circuit recently confirmed that an original mortgage lender cannot be held vicariously liable for violations of the Real Estate Settlement Procedures Act (RESPA) regulations pertaining to loss mitigation allegedly committed by a loan servicer.

In defense to a Texas judicial foreclosure action, the mortgagor filed a thirdparty complaint against the lender that had originated her mortgage loan. The mortgagor asserted violations arising from 12 C.F.R. 1024.41, a RESPA regulation which, among other things, requires a mortgage loan servicer to consider a mortgagor’s complete and timely loss mitigation application and then notify the mortgagor of any loss mitigation options available to avoid foreclosure.

The original lender filed a motion to dismiss the mortgagor’s thirdparty complaint.  The district court agreed with the lender and dismissed it.

Granting an interlocutory appeal filed by the mortgagor, the Fifth Circuit affirmed the dismissal.  It explained that because the text of 12 C.F.R. 1024.41 only imposed obligations on the loan servicer and not the lender, the statutory text “plainly and unambiguously shields” a lender from “any liability created by the alleged RESPA violations of its loan servicer.”  The mortgagor could not circumvent this by alleging, for example, that the loan servicer was acting as the agent for the lender and therefore should be subject to vicarious liability.

This opinion, which appears to be the first from a U.S. appellate court on this issue, is a win for mortgage lenders in that it succinctly limits their potential liability under RESPA’s loss mitigation regulations.


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.

In a third-party complaint captioned as Avery Patrick v. Wells Fargo Bank, N.A., 2018 WL 6613737, Docket No. A-2270-17T3 (App. Div. Dec. 18, 2018), a residential mortgage loan borrower, Avery Patrick, appealed an order of summary judgment rendered by the Superior Court, Middlesex County, Law Division, dismissing his common law tort claim for trespass against his former loan servicer, Wells Fargo.  On appeal, the Appellate Division affirmed.

The Appellate Division held that the borrower executed a note and mortgage that gave the mortgagee and its loan servicer the express right to enter the property to protect its interest in the event of default and abandonment of the premises.  On review of the record, the Appellate Division determined that, after the borrower defaulted on the loan, the loan servicer sent an inspection company to inspect the property on multiple occasions.  Ultimately, the inspection reported that the property appeared to be abandoned and/or vacated.  Accordingly, to protect its collateral, the loan servicer properly secured the property by changing the locks.  The borrower thereafter asserted the trespass claim.

The trial court dismissed the trespass cause of action, and the Appellate Division affirmed, on two bases.  First, the applicable six-year statute of limitations had expired.  Second, and perhaps more importantly, the Court held that even without the lapse of the statute of limitations the cause of action was futile because the loan servicer had the contractual right under the mortgage documents to enter and secure the property in the event of default and abandonment.  Here, the court was persuaded by the factual record that the property had indeed been abandoned, and the court noted that the borrower did not even attempt to re-enter the property until three months following the lockout – further suggesting abandonment.

The decision underscores the importance for loan servicers of ensuring that the property preservation vendors they retain heavily document inspections with photographs, correspondence records, and other evidence demonstrating that properties they enter and secure are indeed abandoned and vacant.

Troutman Sanders regularly defends investors, lenders, mortgage servicers, and other financial institutions with property preservation issues.