Consumer Protection – FDCPA – Residential Foreclosure

Listen to this article

An Alexandria U.S. District Court dismisses plaintiff’s suit alleging defendant bank’s foreclosure on residential real estate violated the Fair Debt Collection Practices Act.

Nothing in plaintiff’s conclusory allegations provides a plausible basis for relief after considering the settled law of negotiable instruments or the enforcement of a deed of trust securing notes after their negotiation. Here, the face of the note shows that the note bank has a blank endorsement. It may be negotiated by a simple change in possession and enforced by its current possessor, defendant bank.

Further, absent a contrary provision, notes are generally freely transferable, and the transferee retains the right to enforce the instrument. The explicit terms of the note at issue here indicate it is freely transferable.

By their own allegations, plaintiffs admit they “refused to pay” on the note. In Virginia, the obligation to pay an instrument can only be discharged as stated in Title 8.3A or by an act or agreement with the party which would discharge an obligation to pay money under a simple contract. Plaintiffs offer no allegation that they reached an agreement with a noteholder or took any other action which would suffice to discharge the obligation under the Virginia statute. To permit the parties to the instrument to object to its payment, on any of the grounds stated, would greatly impair the negotiability of bills and notes; their most distinguishing, most useful and most valued feature.

Next, the “split” of the deed of trust from the promissory note alleged by plaintiffs does not render the deed unenforceable nor does it leave the promissory note unsecured. Under Virginia law, when the note is assigned, the deed of trust securing that debt necessarily runs with it. The deed of trust continues to secure the holder of a note and nothing in the negotiation or putative securitization of a note renders it unsecured.

Plaintiff alleges an FDCPA claim against defendant Ocwen Loan Servicing LLC. This district recently emphasized that mortgage servicing companies and trustees exercising their fiduciary duties enjoy broad statutory exemptions from liability under the FDCPA. Even if the FDCPA did apply, plaintiffs’ FDCPA claim, like plaintiffs’ other claims, is based on the specious premise that the named defendants somehow have no right, title or interest in the deed or the note, despite the plain face of those documents. Plaintiffs offer no plausible basis on which the court can agree with this premise.

Suit against all defendants dismissed.

Hammett v. Deutsche Bank Nat’l Co. (O’Grady, J.) No. 1:09cv1401, March 25, 2010; USDC at Alexandria, Va. VLW 010-3-153, 11 pp.