Consumer Finance Litigation

In Roth v. Nationstar Mortgage, LLC, the Eleventh Circuit Court of Appeal addressed a recurring issue involving whether or not sending monthly mortgage statements regarding a discharged mortgage debt violates the discharge injunctions prohibition on collecting discharged debt, found at 11 U.S.C. 524.

The facts of the case are not at all uncommon. Roth filed a Chapter 13 petition that provided secured creditors would retain their liens. Nationstar serviced a mortgage that was treated in this manner by the plan. Roth completed her Chapter 13 plan and received a discharge, of which Nationstar was notified. The discharge order prohibited creditors from taking any action to collect the discharged debt. Thereafter, Nationstar sent Roth mortgage statements which contained the following relevant disclosures:

First, disclosures that the monthly statement was not an attempt to collect a discharged debt, but rather was for informational purposes. Second, notwithstanding the above, the monthly statements provided the amount due, due date, and instructions on how to remit payment to Nationstar.

Despite a cease and desist letter from Roth’s counsel, Nationstar continued to send monthly statements. Roth then filed a motion for sanctions under Section 105 of the bankruptcy code with the bankruptcy court alleging violations of Section 524.

Upon review of the Bankruptcy Court’s order, the District Court held that Nationstar’s notices were not an attempt to collect a debt and did not violate the discharge order. This ruling was affirmed by the Eleventh Circuit in an opinion released on August 28, 2018.

In its opinion, the Eleventh Circuit placed great emphasis on the disclaimers included by Nationstar and found that in light of the disclaimers, the “objective effect” of the communication could not be construed as “pressur[ing] the debtor to pay a discharged debt.” As for Nationstar’s inclusion of the amount due, due date, and payment instructions, the Eleventh Circuit noted that the effect of Roth’s Chapter 13 was the creditor’s retention of a lien on Roth’s property – i.e. her continued non-payment would likely result in her losing the property – even though her personal liability had been extinguished. The Eleventh Circuit noted that the Bankruptcy Code expressly allows a debtor to voluntarily repay that discharged debt, which Roth might well want to do if she had an interest in retaining the property. Thus, the information Nationstar supplied to Roth was potentially helpful to her and the Court declined Roth’s invitation to eliminate the ability of creditors to supply such information, even after discharge – so long as that information is accompanied by adequate disclosure that it is for informational purposes only and is not an attempt to collect a discharged debt. Furthermore, the Eleventh Circuit rejected Roth’s invitation to use the FDCPA “lease sophisticated consumer standard” when evaluating claims of a discharge order violation under Section 524.

Finally, on a matter of procedure, the Court held that Roth was not entitled to an evidentiary hearing where, as here, the material facts were not in dispute. Both parties agreed what the notices at issue said, and the lower court could therefore determine whether or not those notices “objectively” violated Section 524. As to Roth’s contention that evidence should have been taken as to her “subjective” view of the notices, the Eleventh Circuit found that her subjective belief was “irrelevant” to the Court’s finding that the document did not constitute unlawful debt collection.  This procedural matter has wide reaching implications for other cases alleging a violation of Section 524 and is certain to find frequent citation among the creditor’s bar.

A copy of the Eleventh Circuit’s opinion can be found here.