Locke Lord QuickStudy: Federal District Court Pumps the Brakes on Borrower’s Post-Acceleration FCRA Class Action Lawsuit

Locke Lord LLP
December 20, 2017
On December 11, 2017, Locke Lord obtained a dismissal with prejudice of a punitive class action.  In Leones v. Rushmore Loan Management Services, LLC, No. 0:17-CV-61216-WPD (S.D. Fla. Dec. 11, 2017), the United States District Court for the Southern District of Florida was presented with the issue of whether a loan servicer violated the Fair Credit Reporting Act (“FCRA”) by reporting a mortgage delinquent following acceleration. The premise of the Borrower’s complaint was that following acceleration, she no longer had the ability and/or obligation to make monthly payments; she could only reinstate her mortgage and it was inaccurate or misleading for the loan servicer to continue reporting her loan delinquent each month. The court dismissed the Borrower’s complaint with prejudice, ruling that: (a) the loan servicer’s reporting was factually accurate; and (b) the Borrower’s argument constituted a legal challenge to the monthly payments, which is an impermissible basis for an FRCA claim. This decision is a win for banks and servicers alike and provides clarity on this particular aspect of consumer reporting.

The Court found that the reported information regarding Plaintiff’s mortgage loan account—that it was 120 days or more delinquent and that foreclosure proceedings were initiated—was both accurate and complete. As the reported information was not inaccurate or incomplete, Plaintiff could not plausibly allege damages based on the furnisher’s alleged failure to conduct a reasonable investigation or reinvestigation.

As a separate basis for the dismissal, the Court held that the Plaintiff at best alleged a legal defense to the debt, and not a factual inaccuracy in Rushmore’s reporting, which is insufficient to state an FCRA claim against a furnisher under § 1681s-2(b). This aspect of the Court’s opinion is particularly important for two reasons. First, by correctly concluding that this post-acceleration argument is a legal dispute and insufficient to support an FCRA claim, future plaintiffs will be strongly discouraged from asserting this particular argument. Second, this case provides further support for the line of cases holding that legal disputes are inappropriate grounds for FCRA claims and may be used to support dismissal of future claims asserting other novel legal defenses as a basis for an FCRA claim.

Finally, although the Court noted that it did not need to reach the merits of Plaintiff’s legal assertion that she no longer had the ability and/or obligation to make monthly mortgage payments following the initiation of a mortgage foreclosure lawsuit, the Court observed that Plaintiff appeared to misapprehend the terms of her mortgage and the governing case law, citing ¶ 19 of the mortgage (“Borrower’s Right to Reinstate After Acceleration”) and Deutsche Bank Tr. Co. Americas v. Beauvais, 188 So. 3d 938, 947 (Fla. 3d DCA 2016) (“[d]espite acceleration of the balance due and the filing of an action to foreclose, the installment nature of a loan secured by such a mortgage continues until a final judgment of foreclosure is entered and no action is necessary to reinstate it via a notice of “deceleration” or otherwise.”).

Impact: Furnishers can continue to report mortgage loans delinquent following acceleration, provided the reporting is factually accurate.

The court’s ruling makes clear that the Plaintiff’s challenge to the servicer’s post-acceleration reporting was legal, and not factual, in nature and therefore insufficient to support a claim for violation of the FCRA. As long as the post-acceleration reporting is factually accurate, borrowers will not be permitted to challenge the reporting on the basis of the mortgage’s acceleration and/or reinstatement provisions.