Wisconsin Federal Court Holds That Debt Collector’s Threat of Foreclosure May Have Violated FDCPA

The United States District Court for the Western District of Wisconsin recently held that a debt collector’s first letter to a consumer in which it noted the amount due but did not make any threats did not violate the Fair Debt Collection Practices Act (“FDCPA”), but that a second letter that stated “the foreclosure process may be imminent” may have been a violation.  See Whalen v. Specialized Loan Servicing, LLC, 2016 WL 126919 (W.D. Wis. Jan. 11, 2016).  In the case, the debt collector sent two letters to the plaintiff concerning a mortgage debt that had been discharged in bankruptcy.  The first letter simply stated that amount of the debt, that nothing was past due, and that the notice might be inapplicable if the debt had been discharged in bankruptcy.  The second letter, sent less than a month later, stated “your mortgage is in serious default and the foreclosure process may be imminent” and that the debt collector was prepared to take “further action[,]” but nonetheless proceeded to state the same information regarding bankruptcy as the first letter.  The plaintiff alleged FDCPA violations for both letters, claiming that they were “false, deceptive or misleading” in violation of 15 USC 1692e.  The debt collector moved to dismiss, arguing that the letters were not sent in connection with the collection of a debt, a prerequisite for a claim under the FDCPA, nor were they misleading. With regard to the first letter, the District Court cited the decision of Bailey v. Security National Servicing Corp., in which the United States Court of Appeals for the Seventh Circuit found that a letter was not sent in connection with the collection of a debt because “the defendant did not make a demand for payment[.]”  154 F.3d 384 (7th Cir.1998).  The Court found that the first letter here likewise was no more than “an account status update” that was not subject to the FDCPA.  With regard to the second letter, the Court found that the threat of foreclosure made the letter more similar to the letter at issue in Gburek v. Litton Loan Servicing LP, in which the Seventh Circuit found that the letter was sent in connection with a debt collection and was subject to the FDCPA.  614 F.3d 380 (7th Cir. 2010).  After determining that only the second letter was subject to the FDCPA, the Court found that the letter was misleading because the mortgaged property had already been foreclosed upon, meaning that the debt collector could not have intended to foreclose on same and was making a false threat.  It therefore denied the motion to dismiss with regard to the second letter. For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com.