Donnelly-Tovar v. Select Portfolio Servicing, Inc.

Filing 19

MEMORANDUM AND ORDER - The defendant's motion to dismiss, Filing No. 6 , is denied. Ordered by Judge Joseph F. Bataillon. (GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
SHELLY DONNELLY-TOVAR, on behalf of
herself and all others similarly situated;
8:12CV203
Plaintiff,
vs.

MEMORANDUM AND ORDER

SELECT PORTFOLIO SERVICING, INC.,
Defendant.

This matter is before the court on a motion to dismiss filed by the defendant,
Select Portfolio Servicing, Inc. (“SPS”), Filing No. 6. This is a purported class action for
violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”).
The court has jurisdiction under 28 U.S.C. §§ 1692k(d), 1331, and 1337.
I. BACKGROUND
In her complaint, the plaintiff, on behalf of herself and others similarly situated,
seeks actual and statutory damages against the defendant, an alleged debt collector,
“arising from the routine practice of sending collection letters to consumers, like the
those sent to Ms. Donnelly-Tovar which inter alia failed to provide the validation notice
pursuant to 15 U.S.C. § 1692g(a), the debt collection warning pursuant to 15 U.S.C. §
1692e(11), misrepresented the character, amount, or status of the debt in violation of 15
U.S.C. § 1692e(2)(A) and e(10), and attempted to collect amounts not authorized by
contract or law which had been discharged in bankruptcy in violation of 15 U.S.C. §
1692f(1).” Filing No. 1, Complaint at 1. Ms. Donnelly-Tovar alleges she incurred a
mortgage obligation with First Franklin Loan Services (“First Franklin”) for the purchase
of real property. Id. at 2. She later came into financial difficulty, falling into arrears on

the mortgage. Id. She alleges she filed a Chapter 7 bankruptcy allegedly listing First
Franklin as a secured creditor and First Franklin was notified of the bankruptcy filing. Id.
at 2-3. She further alleges her obligations were discharged in bankruptcy court on May
10, 2020 and she abandoned her interest in the property. Id. at 3; see also In re
Donnelly-Tovar, No. 10-80219 (Bankr. D. Neb. May 10, 2010). She also alleges she
has not reaffirmed or renewed the discharged mortgage obligation with First Franklin or
any other entity. Id. Further, she alleges that the defendant obtained her obligation to
First Franklin after the debt had fallen into default. Id. at 3.1
She later received correspondence from the defendant offering to release a
secured lien on the property at issue for payment in the amount of $23,891.72, which
was less than the total amount of $59,729.31 secured by the lien. Id. at 3; Ex. A, Letter
dated December 28, 2011. She alleges the December 28, 2011, letter was the initial
communication from SPS. Id. at 4. She further alleges that it is a routine practice of
SPS to send such letters. Id.
In the letter quoted in and attached to the complaint, SPS proposes that the
payment will effect “a full and complete satisfaction of the lien on the property,” noting
that the “total amount secured by the lien is $59,729.31.” Id. at 3-4; Ex. A, Letter at 1.
Further, the letter sets out detailed payment instructions stating that “[p]ayment must be
in the form of certified funds according to the attached instructions page for certified
funds remittance” and that “[c]ertified funds may be sent in the form of a bank wire,
1

In her response to the defendant’s motion, relying on the public record, the plaintiff states that a
foreclosure proceeding was filed in the District Court of Pottawattamie County, Iowa, captioned National
City Bank, Plaintiff, vs. Shelly Donnelly Tovar, Spouse of Shelly Donnelly-Tovar, First Franklin Financial
Corporation, Omar S. Tovar, City of Carter Lake, and Parties in Possession, NO. EQ CV-099568, and
that a default judgment was entered in that case on August 28, 2009. The defendant objects to the
court’s consideration of this information. The court did not rely on the information in making its
determination, and consequently the defendant’s objections are moot.
2

cashier’s bank check, attorney trust account check, title or escrow company check, or
Western Union Quick Collect.” Id. at 1-2. The letter states “[t]his information is for
informational purposes only and is not considered an attempt to collect a debt.” Id. at 1.
The letter identifies SPS, however, as a collection agency licensed in Minnesota, North
Carolina, and Tennessee. Id.
SPS moves to dismiss under Fed. R. Civ. P. 12(b)(6). It argues that the plaintiff’s
complaint does not state a claim for relief because the FDCPA does not apply “to a
secured creditor’s enforcement of its lien on real property when the underlying debt was
extinguished and the creditor does not simultaneously attempt to collect that debt.”
Filing No. 7, Brief at 1. It argues that SPS had the right to enforce the lien and contends
that the letter accurately explained to the plaintiff that although her “personal liability on
the note may be discharged, dismissed, or subject to an automatic stay, the terms of the
mortgage remain in effect. The owner of the mortgage, as lien holder, continues to
have an enforceable lien on the real property.’”

Id. at 2. It cites SPS’s “repeated

assurances in the Letter that it was not demanding payment, that it was not attempting
to collect a debt, and that Donnelly-Tovar no longer had personal liability for the
mortgage obligation,” as support for its position that it “was not attempting to collect on
an ‘obligation or alleged obligation of a consumer to pay money,’ but was instead
offering options for the settlement of an in rem right to enforce a security interest.” Id. at
3-4. SPS argues that “security interest enforcement activities do not constitute attempts
to collect a ‘debt’ as defined by the FDCPA.” Id. at 4. The defendant argues that the
FDCPA is “simply not implicated” because “there was no simultaneous demand for
payment, no suggestion that payment was mandatory, and no implication that Donnelly-

3

Tovar had personal financial responsibility.” Filing No. 18, Reply Brief at 6. It states
that the letter “does not so much as hint that Donnelly-Tovar was obligated to pay
anyone,” adding that she “was free to act, or not act, as she desired.” Reply Brief at 10.
II. LAW
A. Fed. R. Civ. P. 12(b)(6) Standards
Under the Federal Rules, a complaint must contain “a short and plain statement
of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The
rules require a “‘showing,’ rather than a blanket assertion, of entitlement to relief.” Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 556 n.3. (2007) (quoting Fed. R. Civ. P.
8(a)(2)). “Specific facts are not necessary; the statement need only ‘give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.’” Erickson v.
Pardus, 551 U.S. 89, 93 (2007) (quoting Twombly, 550 U.S. at 555). In order to survive
a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the plaintiff's obligation to provide the
grounds for his entitlement to relief necessitates that the complaint contain “more than
labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Twombly, 550 U.S. at 555.
The factual allegations of a complaint are assumed true and construed in favor of
the plaintiff, “even if it strikes a savvy judge that actual proof of those facts is improbable
and ‘that a recovery is very remote and unlikely.’” Id. (quoting Scheuer v. Rhodes, 416
U.S. 232, 236 (1974)). “On the assumption that all the allegations in the complaint are
true (even if doubtful in fact),” the allegations in the complaint must “raise a right to relief
above the speculative level.”

Twombly, 550 U.S. at 555-56.

In other words, the

complaint must plead “enough facts to state a claim for relief that is plausible on its

4

face.” Id. at 547. “A claim has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.”

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (stating that the

plausibility standard does not require a probability, but asks for more than a sheer
possibility that a defendant has acted unlawfully.).
Thus, the court must find “enough factual matter (taken as true) to suggest” that
“discovery will reveal evidence” of the elements of the claim. Twombly, 550 U.S. at 558,
556; Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005) (explaining that something
beyond a faint hope that the discovery process might lead eventually to some plausible
cause of action must be alleged). When the allegations in a complaint, however true,
could not raise a claim of entitlement to relief, the complaint should be dismissed for
failure to set a claim under Fed. R. Civ. P. 12(b)(6). Twombly, 550 U.S. at 558; Iqbal,
556 U.S. at 679.
B. Mortgage/Bankruptcy Law
“A promissory note is a contract evidencing a debt and specifying terms under
which one party will pay money to another.” Reese v. Ellis, Painter, Ratterree & Adams,
LLP, 678 F.3d 1211, 1216 (11th Cir. 2012). “By contrast, a security interest is not a
promise to pay a debt; it is an interest in some collateral that a lender can take if a
debtor does not fulfill a payment obligation.” Id. A mortgage is a type of security
interest with real property as the collateral. See Black’s Law Dictionary 1031 (8th ed.
2004). Generally, a mortgage also involves a promissory note. See, e.g., Reese, 678
F.3d at 1216.

5

A mortgagor’s Chapter 7 discharge eliminates in personam liability for the
promissory note given to obtain a mortgage loan. 11 U.S.C. § 524(a). A mortgagee’s
security interest in the property survives the bankruptcy proceedings notwithstanding
the discharge of the mortgagor’s personal liability. See Johnson v. Home State Bank,
501 U.S. 78, 82-83 (1991) (citing 11 U.S.C. § 522(c)); see also Burns v. Burns, 11
N.W.2d 461, 463 (Iowa 1943) (“Under the laws of [Iowa] a mortgage . . . is simply a lien
. . . for the purpose of securing the indebtedness.”).
C. FDCPA
The FDCPA was enacted in 1977 for the purpose of eliminating abusive debt
collection practices by debt collectors, among other things.

Jerman v. Carlisle,

McNellie, Rini, Kramer & Ulrich LPA, 559 U.S. 573, —, 130 S. Ct. 1605, 1608 (2010);
Dunham v. Portfolio Recovery Associates, LLC, 663 F.3d 997, 1000 (8th Cir. 2011). It
regulates where and when a debt collector may communicate with a consumer. See 15
U.S.C. § 1692c. The Act “prohibits, inter alia, ‘the use or threat of violence, obscene
language, publication of shame lists, and harassing or anonymous telephone calls.’”
Quinn v. Ocwen Fed. Bank FSB, 470 F.3d 1240, 1246 (8th Cir. 2006) (quoting 15
U.S.C. § 1692(d)). Under the FDCPA, debt collectors cannot use false, deceptive,
misleading, unfair or unconscionable means to collect or attempt to collect a debt. 15
15 U.S.C. § 1692(d)&(f).

An example of this type of prohibited conduct is “[t]he

collection of any amount . . . unless such amount is expressly authorized by the
agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1). “‘Taking or
threatening to take any nonjudicial action to effect dispossession or disablement of
property’ if, e.g., ‘there is no present right to possession of the property claimed as

6

collateral through an enforceable security interest’” is also listed as a prohibited activity
under the Act. See Glazer v. Chase Home Finance LLC, — F.3d —, No. 10-3416, 2013
WL 141699, *6 (6th Cir. January 14, 2013) (quoting 15 U.S.C. § 1692f(6)(A)). Similarly,
the FDCPA prohibits “[t]he false representation of . . . the character, amount, or legal
status of any debt.” 15 U.S.C. § 1692e(2)(A).
In evaluating whether a debt collection letter is false, misleading or deceptive, the
letter must be viewed through the eyes of the unsophisticated consumer.

Duffy v.

Landberg, 215 F.3d 871, 873 (8th Cir. 2000). The unsophisticated consumer standard
is “designed to protect consumers of below average sophistication or intelligence
without having the standard tied to ‘the very last rung on the sophistication ladder.’” Id.
(quoting Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1236 (5th Cir.
1997) and Gammon v. GC Servs. Ltd. Partnership, 27 F.3d 1254, 1257 (7th Cir. 1994)).
“This standard protects the uninformed or naive consumer, yet also contains an
objective element of reasonableness to protect debt collectors from liability for peculiar
interpretations of collections letters.”

Id. at 874-75; see also Volden v. Innovative

Financial Systems, Inc., 440 F.3d 947, 955 (8th Cir. 2006).
The FDCPA mandates that, as part of noticing a debt, a “debt collector” must
“send the consumer a written notice containing”—along with other information—“the
name of the creditor to whom the debt is owed[.]” 15 U.S.C. § 1692g(a)(2); see Bourff v.
Rubin Lublin, LLC, 674 F.3d 1238, 1241 (11th Cir. 2012) (noting that the identity of the
creditor in these matters is a serious matter). Under the FDCPA, “creditor” is defined as
“any person who offers or extends credit creating a debt or to whom a debt is owed, but
such term does not include any person to the extent that he receives an assignment or

7

transfer of a debt in default solely for the purpose of facilitating collection of such debt
for another.”

15 U.S.C. § 1692a(4).

The “‘distinction between creditors and debt

collectors is fundamental to the FDCPA,’” because the Act “‘does not regulate creditors’
activities at all.’” Schmitt v. FMA Alliance, 398 F.3d 995, 998 (8th Cir. 2005) (quoting
Randolph v. IMBS, Inc., 368 F.3d 726, 729 (7th Cir. 2004)).
To be held directly liable for violation of the FDCPA, a defendant must—as a
threshold requirement—fall within the Act’s definition of “debt collector.” See Heintz v.
Jenkins, 514 U.S. 291, 294 (1995). Congress incorporated a broad definition of both
“debt” and “debt collector” into the FDCPA in order to achieve its remedial purpose.
F.T.C. v. Check Investors, Inc., 502 F.3d 159, 167-68 (3d Cir. 2007); see 15 U.S.C. §§
1692a(5), 1692a(6).

A “debt collector” is defined as “any person who uses any

instrumentality of interstate commerce or the mails in any business the principal
purpose of which is the collection of any debts, or who regularly collects or attempts to
collect, directly or indirectly, debts owed or due or asserted to be owed or due another.”
15 U.S.C.A. § 1692a(6). Attorneys and law firms are covered under the Act. Heintz,
514 U.S. at 299 (stating that “the Act applies to attorneys who ‘regularly’ engage in
consumer-debt-collection activity, even when that activity consists of litigation.”).
“The definition of debt collector pursuant to § 1692a(6)(F)(iii) includes any
nonoriginating debt holder that either acquired a debt in default or has treated the debt
as if it were in default at the time of acquisition.” Bridge v. Ocwen Federal Bank, FSB,
681 F.3d 355, 362 (6th Cir. 2012) (finding error in the district court’s dismissal of a
complaint against mortgage lender, assignee, and servicer for FDCPA violations). “[A]
debt holder or servicer is a debt collector when it engages in collection activities on a

8

debt that is not, as it turns out, actually owed.” Id. (noting “[t]his stands to reason since
the pursuit of collection activities presupposes that the collector alleges or asserts that
the subject of those activities is obligated.”).
The FDCPA broadly defines the word “debt” as “any obligation or alleged
obligation of a consumer to pay money arising out of a transaction in which the money,
property, insurance, or services which are the subject of the transaction are primarily for
personal, family, or household purposes.” 15 U.S.C. § 1692a(5); see Glazer, — F.3d at
—, 2013 WL 141699, *5 (noting that “[t]he focus on the underlying transaction indicates
that whether an obligation is a ‘debt’ depends not on whether the obligation is secured,
but rather upon the purpose for which it was incurred.”) “A home loan is a ‘debt’ even if
it is secured.” Id.; see Reese, 678 F.3d at 1217-18; Maynard v. Cannon, 401 Fed.
Appx. 389, 394 (10th Cir. 2010); Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373,
376 (4th Cir. 2006).
Debt collection is performed through either “communication,” “conduct,” or
“means,” suggesting a “broad view of what the Act considers collection.” Glazer, 2013
WL 141699 at *6. If a purpose of an activity taken in relation to a debt is to “obtain
payment” of the debt, the activity is properly considered debt collection.

Id.

A

communication to collect a debt is one that either demands a payment, or implies that
something is owed. Bailey v. Security Nat. Servicing Corp., 154 F.3d 384, 389 (7th Cir.
1998). There is no categorical rule that only an explicit demand for payment will qualify
as a communication made in connection with the collection of a debt. Gburek, 614 F.3d
380, 385 (7th Cir. 2010) (noting that “the absence of a demand for payment is just one
of several factors that come into play in the commonsense inquiry of whether a

9

communication from a debt collector is made in connection with the collection of any
debt”); Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011). The
nature of the parties’ relationship is another factor to consider, as is the purpose of the
communication. Id. at 385; Grden, 643 F.3d at 173 (stating that “for a communication to
be in connection with the collection of a debt, an animating purpose of the
communication must be to induce payment by the debtor”); Ruth v. Triumph
Partnerships, 577 F.3d 790, 794-95 (7th Cir. 2009). A communication made specifically
to induce the debtor to settle her debt will be sufficient to trigger the protections of the
FDCPA. Gburek, 614 F.3d at 385; Horkey v. J.V.D.B. & Assocs., 333 F.3d 769, 772-74
(7th Cir. 2003). A disclaimer identifying a communication as an attempt to collect a debt
will not automatically trigger the protections of the FDCPA, just as the absence of such
language does not have dispositive significance. Gburek, 614 F.3d at 386 n.3 (7th Cir.
2010) (involving a mortgage loan); Lewis v. ACB Bus. Servs., Inc., 135 F.3d 389, 400
(6th Cir. 1998).
The FDCPA draws a distinction between general debt collection and
enforcement of a security interest. Kaltenbach v. Richards, 464 F.3d 524, 527 n.3 (5th
Cir. 2006). “A person whose business has the principal purpose of enforcing security
interests but who does not otherwise satisfy the definition of a debt collector is subject
only to § 1692f(6) [which prohibits certain non-judicial repossession abuses].” Id. at
527. However, “the entire FDCPA can apply to a party whose principal business is
enforcing security interests but who nevertheless fits § 1692a(6)’s general definition of a
debt collector.” Id. at 528; see also Glazer, 2013 WL 141699 at *8 (noting that “[s]ection
1692f(6) thus recognizes that there are people who engage in the business of

10

repossessing property, whose business does not primarily involve communicating with
debtors in an effort to secure payment of debts.”); Wilson, 443 F.3d at 378 (holding
§ 1692f(6) “applies to those whose only role in the debt collection process is the
enforcement of a security interest.”); Montgomery, 346 F.3d at 700 (agreeing that “those
who enforce security interests, such as repossession agencies, fall outside the ambit of
the FDCPA,” except for the purposes of § 1692f(6)); Nadalin v. Auto. Recovery Bureau,
Inc., 169 F.3d 1084, 1085 (7th Cir. 1999) (noting that “repossessors” must comply with
§ 1692f(6)); James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995) (noting
that “a few provisions of the Act subject repossession companies to potential liability
when they act in the enforcement of others’ security interests”).
Several Circuit Courts of Appeal have recently applied the FDCPA to activities
involving mortgage foreclosures.

See Glazer, 2013 WL 141699 at *5-*6 (mortgage

foreclosure is debt collection under the Act); Reese, 678 F.3d at 1218 (rejecting the
distinction between attempts to collect a debt and purported attempts to enforce a
security interest); Birster v. American Home Mortg. Servicing, Inc., 481 Fed. Appx. 579,
583, 2012 WL 2913786, **4 (11th Cir. July 18, 2012) (holding that a mortgage loan
servicer’s alleged conduct supported conclusion that it engaged in debt collection
activity in addition to its activity to enforce security interest); Bridge v. Ocwen Federal
Bank, FSB, 681 F.3d 355, 362 (6th Cir. 2012) (holding that a mortgage loan servicer
can be either a creditor or a debt collector but cannot “define itself out of either
category,” and was a debt collector in that case); Wilson, 443 F.3d at 376 (holding that
the FDCPA may apply to efforts to recoup a debt through foreclosure, stating that to
hold otherwise “would create an enormous loophole in the Act immunizing any debt

11

from coverage if that debt happened to be secured by a real property interest and
foreclosure proceedings were used to collect the debt”); Piper v. Portnoff Law Assocs.,
Ltd., 396 F.3d 227, 235 (3d Cir. 2005) (stating that “the text of the FDCPA evidences a
Congressional intent to extend the protection of the Act to consumer defendants in suits
brought to enforce liens”); Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 386 (7th
Cir. 2010) (holding that a letter threatening foreclosure while also offering to discuss
“foreclosure alternatives” qualified as a communication related to debt collection
activity);2 see also Stone v. Washington Mut. Bank, 2011 WL 3678838, *9 (N.D. Ill. Aug.
19, 2011) (finding, in a case involving this defendant, that allegations “that SPS
‘obtain[s] or produce[s] forged documents’ and ‘organize[s] and assign[s] straw-man
plaintiffs in tens of thousands of mortgage-foreclosure cases nationwide, without
evidence of ownership’” were sufficient to state a claim under FDCPA). The Eleventh
Circuit Court of Appeals explains the rationale behind these cases:
In every case involving a secured debt, the proposed rule [exempting any
communication that attempts to enforce a security interest regardless of
whether it also attempts to collect the underlying debt from the FDCPA]
would allow the party demanding payment on the underlying debt to
dodge the dictates of § 1692e by giving notice of foreclosure on the
secured interest. The practical result would be that the Act would apply
only to efforts to collect unsecured debts. So long as a debt was secured,
a lender (or its law firm) could harass or mislead a debtor without violating
the FDCPA. That can’t be right. It isn’t. A communication related to debt
collection does not become unrelated to debt collection simply because it
also relates to the enforcement of a security interest. A debt is still a
“debt” even if it is secured.

2

These holdings are not at odds with Eighth Circuit precedent. In an unpublished opinion, the
Eighth Circuit affirmed this court’s finding that the defendants therein could not be classified as debt
collectors under the statutory scheme. Siegel v. Deutsche Bank Nat. Trust Co., 409 Fed. Appx. 975, 976,
2011 WL 493116, **1 (8th Cir. 2011). However, the plaintiff’s complaint in that case had not alleged facts
sufficient to show the defendant therein was a debt collector and there were “no factual assertions
whatsoever that the plaintiffs suffered any abusive collection practices. Siegel v. Deutsche Bank Nat.
Trust Co., — F. Supp. 2d —, 2009 WL 3254491, *4 (D. Neb. 2009). Notably the challenge related to a
mortgage foreclosure action and the FDCPA was barred by the statute of limitations. Id.
12

Reese, 678 F.3d at 1217-18; see also Wilson, 443 F.3d at 376 (holding that the “‘debt’
remained a ‘debt’ even after foreclosure proceedings commenced” and that foreclosure
lawyers may come under the general definition of “debt collector” subject to all the
provisions of the FDCPA as they most frequently settle the foreclosure with a payment
of money from a refinancing, or payoff from the sale of the house); see also Kaltenbach
v. Richards, 464 F.3d 524 (5th Cir. 2006) (same); Piper v. Portnoff Law Assocs., Ltd.,
396 F.3d 227, 234 (3d Cir. 2005) (holding that a collection letter’s threat to execute a
lien if payment is not made on a debt “does not change [the law firm’s] communications
to the [debtors] into something other than an effort to collect that debt” reasoning that
the underlying mortgage was a qualifying transaction involving the loan of money;
Bourff, 674 F.3d at 1241 (holding that a letter requesting payment on a promissory note
secured by a mortgage is “an attempt at debt collection” within the meaning of FDCPA).
The Sixth Circuit Court of Appeals defines debt collector as including “any nonoriginating debt holder that either acquired a debt in default or has treated the debt as if
it were in default at the time of acquisition.” Bridge, 681 F.3d at 362 (stating that “[i]t
matters not whether such treatment was due to a clerical mistake, other error, or
intention.”). A defendant sued under the FDCPA “cannot escape coverage under the
Act by asserting to the court that the debt was not actually in default, despite having
dunned plaintiffs for months or years” and may not “retroactively change the status of
the plaintiff it has pursued as an alleged debtor.”

Id. at 363. FDCPA coverage is not

defeated by clever arguments for technical loopholes that seek to devour the
protections Congress intended. Id. at 361 (noting “an unsettling trend in FDCPA claims”
of defendants seeking to “have it both ways: after having engaged in years of collection
13

activity claiming a mortgage is in default,” later seeking to “defeat the protections of the
FDCPA by relying on Plaintiffs’ position throughout those years that the mortgage is not
in default”). The statutory language itself confirms that Congress intended to provide
protection for those persons being dunned in error. Id.; see also Dunham, 663 F.3d at
1001 (providing FDCPA does provide a remedy to “non-debtors mistakenly targeted by
debt-collection efforts”).
III. DISCUSSION
The court finds the plaintiff’s complaint sets forth sufficient facts to state a claim
for a violation of the FDCPA. The plaintiff alleges the defendant is a debt collector and
that it obtained interest in the debt after it was in default. Plaintiff has sufficiently alleged
facts demonstrating that the defendant is a debt collector within the meaning of the
FDCPA. The allegations of the complaint, which sets out the language of the letter and
incorporates it, support a plausible inference that SPS is a debt collector and was
engaged in debt collection. In the letter, SPS clearly asks for money. Although the
letter states the underlying obligation was discharged, dismissed or stayed, it implies
that payment is obliged, since it asks for payment of money, even providing instructions
on payment. The purpose of the letter is an attempt to collect monies that were owed
on the obligation. From the language of the letter, the court finds it evident that SPS’s
purpose was not to enforce a security interest, but an attempt to collect the underlying
loan debt. Clearly, the communication is intended to encourage Donnelly-Tovar to pay
a debt she is no longer obligated to pay.
The court agrees with the plaintiff that the letter could be confusing and
deceptive. Although the letter truthfully states that the owner of the mortgage retains its

14

enforceable lien on the property, it does not identify itself or anyone else as the owner of
the mortgage, nor inform her of the effect of any release of the lien on her interests.
The court finds the defendant’s letter would confuse the unsophisticated consumer.
The letter is inherently contradictory. It purports to tell the plaintiff her “personal liability
on the note may be discharged, dismissed, or subject to an automatic stay,” but at the
time asks for a substantial payment in “settlement.” The letter states it is not an attempt
to collect a debt, yet SPS is identified as a licensed debt collector. Although the letter
refers to a note, no note is identified. Notably, the letter does not refer to First Franklin
or any other entity, including itself, as the mortgage holder.

SPS states that

“compliance” is one purpose of the communication, without reference to any statute or
law requiring such compliance. There is no reference to any foreclosure, or any explicit
statement that the defendant has no obligation to pay the amount secured by the lien.
SPS states at one point in the letter that its records indicate the obligation “has
been discharged, dismissed or is subject to an automatic stay of bankruptcy order,”
without stating which of those alternatives apply. Later, the letter vaguely states that the
debt “may be either discharged, dismissed or subject to an automatic stay.” Contrary to
the defendant’s assertions, the letter does not state unequivocally that the plaintiff has
no obligation to pay any purported “note.” When presented with these contradictory and
inconsistent statements, an unsophisticated consumer would be uncertain of the nature
and amount of debt she actually owed, unaware of the consequences of either payment
or nonpayment, and would be left “scratching [her] head upon receipt of such a letter.”
See, e.g., Avila v. Rubin, 84 F.3d 222, 226 (7th Cir. 1996).

15

The court finds that defendant’s argument that the letter contains no hint of any
obligation on the part of Donnelly-Tovar is disingenuous, if not specious.

Its

characterization of the correspondence as a simple attempt to offer the plaintiff an
opportunity to obtain a release of the lien is similarly untenable. The letter clearly asks
for a substantial amount of money. An unsophisticated consumer would reasonably
assume there was some sort of obligation connected to the request. A fair reading of
the letter shows that that SPS misrepresents the character or amount of plaintiff’s debt
and fails to comply with other requirements of the FDCPA.

The court finds the

complaint contains factual allegations from which the court can draw the reasonable
inference that the defendant is liable for the FDCPA violations alleged in the complaint.
The defendant’s reliance on 15 U.S.C. § 1692f(6) and on cases involving
repossession of collateral is misplaced. The defendant relies on the sort of “clever
arguments” and “technical loopholes” that courts have rejected in recent cases.
Further, defendant’s protestation that it cannot be engaged in debt collection because
there is no debt is unavailing.

The coverage of the FDCPA reaches consumers

mistakenly dunned for a debt and those consumers have no actual debt. If the letter is
not an attempt to collect a debt, then it can only be an attempt to defraud or extort
money from a person with no obligation to pay it or solicitation of a gift. A disclaimer
stating that the letter “is not an attempt to collect a debt,” does not make that true,
especially in view of indications on the face of the document that the communication is
intended to obtain money and is connected to a present or former obligation to pay an
indebtedness.

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The collection letter at issue here is at best confusing to an unsophisticated
consumer and at worst an intentionally misleading attempt to induce unsuspecting
consumers into paying money on nonexistent debts.

The court is troubled by the

prospect that this case may involve a third-party debt buyer attempting to collect money
from a consumer on a debt she does not owe.3
IT IS ORDERED that the defendant’s motion to dismiss, Filing No. 6, is denied.
Dated this 4th day of February, 2013.
BY THE COURT:

s/ Joseph F. Bataillon
United States District Judge

3

A debt buyer purchases consumer debts that have been written off by the original creditor,
generally acquiring the debts for a fraction of the balance, and then attempting to collect the entire debt.
Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1059 (9th Cir. 2011). Because a debt buyer has no
ongoing relationship with the consumer and no incentive to create goodwill, a case involving a debt buyer,
as opposed to the entity that actually extended credit to the consumer, raises different concerns. Federal
Trade Commission, Collecting Consumer Debts: The Challenges Of Change, A Workshop Report at 5
(Feb. 2009) (“Challenges of Change”) available at http://www.ftc.gov/bcp/workshops/debtcollection/
dcwr.pdf (last visited February 19, 2013) (discussing some of the consumer challenges raised by the
advent of the debt-buying industry); see Federal Trade Commission, Repairing a Broken System:
Protecting Consumers in Debt Collection Litigation and Arbitration at 15 (July 2010) available at
http://www.ftc.gov/debtcollectionreport.pdf (last visited February 19, 2013) (finding that debt collectors
who have insufficient information may approach the wrong consumers, try to collect the wrong amount, or
both); Federal Trade Commission, The Structure and Practices of the Debt-Buying Industry at 34-35
(January 2013) (noting deficiencies in the information debt collectors, including debt buyers provide to
consumers in validation notices). The court is aware of numerous abuses by such debt buyers such as
suits on time-barred debts. See Challenges of Change at 27- 29; see, e.g., FTC v. Asset Acceptance,
LLC, Case No. 8:12CV182 (M.D. Fla. Jan 31, 2012) available at http://www.ftc.gov/opa/2012/01/
asset.shtm (settlement and payment of civil fine for attempting to collect on time-barred debt); In re Am.
Express Centurion Bank, Salt Lake City, Utah, FDIC-12-315b, FDIC-12-316k, 2012-CFPB-0002 (Oct. 1,
2012), at 6-7 (Joint Consent Order, Joint Order for Restitution, and Joint Order to Pay Civil Money
Penalty), available at http://files.consumerfinance.gov/f/2012-CFPB-0002-American-Express-CenturionConsent-Order.pdf(consent agreement requiring bank to provide certain disclosures when attempting to
collect time-barred debts).

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