Mortgage Agent Post-Release Credit Checks Did Not Violate FCRA | Smith Debnam Narron Drake Saintsing & Myers, LLP
A divided panel of the United States Court of Appeals for the Ninth Circuit recently ruled that a mortgage manager had an authorized goal to extract the consumption reports of three borrowers for whom he managed two mortgages, even whether the personal liability of borrowers on mortgages had been discharged. bankrupt. Marino c. Ocwen Servicing, LLC, 978 F.3d 669 (9th Cir. 2020). Specifically, the service agent was authorized to access borrowers’ consumption reports in order to assess them for loss mitigation options, such as a loan modification, short sale, or deed in lieu of foreclosure. . Identifier. to 675.
The borrowers each owned a mortgaged home managed by Ocwen Loan Servicing, LLC (“Ocwen”). The borrowers subsequently filed for bankruptcy and each received a discharge, which released their personal liability under their respective mortgages. After the dumps, Ocwen obtained the borrower’s credit reports. The borrowers, eight in total, sued Ocwen in a putative class action lawsuit, alleging that he willfully violated the FCRA by obtaining their consumption reports without an authorized purpose, in alleged violation of 15 USC § 1681b (f) (1).
The United States District Court for the District of Nevada allowed Ocwen’s motion for summary judgment. In doing so, she relied on an earlier unpublished Ninth Circuit decision, Vanamann v. Nationstar Mortgage, LLC, 775 F. App’x 260 (9th Cir. 2018). In Vanamann, the Ninth Circuit dealt with identical facts: a borrower whose personal liability on a mortgage was released in bankruptcy and a mortgage agent who subsequently viewed the borrower’s credit report. Marine, 978 F.3d to 672 (citing Vanamann, 775 F. App’x at 262). There the plaintiff alleged alone a willful violation of the FCRA, forcing it to demonstrate that Nationstar “engaged in conduct” known to violate the [FCRA]”or acted in” reckless disregard of [a] Statutory obligation. ‘” Vanamann, 775 F. App’x at 262 (citing Safeco Ins. Company of Am. v. Burr, 551 United States 47, 56-57 (2007)). To prove reckless disregard, the plaintiff had to prove that Nationstar’s interpretation of the FCRA was objectively unreasonable. Identifier. Nationstar argued that it had an authorized purpose under § 1681b (a) (3) (A), which allows a consumer reporting agency to provide a consumer report to a person whose agency has reason to believe “intends to use information in connection with a credit transaction involving the consumer. . . or the examination or collection of a consumer account. . . . “15 USC § 1681b (a) (3) (A). The Ninth Circuit assumed that Nationstar did not have an authorized purpose under § 1681b, but nonetheless upheld the dismissal of the plaintiff’s claim to the FCRA, because the plaintiff could not demonstrate that Nationstar’s conduct was known to violate the FCRA, or that its interpretation of § 1681b (a) (3) (A) was objectively unreasonable. Identifier. Importantly, the panel noted that the FCRA does not contain any provision “regarding bankruptcy discharges that Nationstar must interpret, let alone interpret recklessly.” Vanamann, 775 F. App’x at 262. On the basis of the almost identical facts at issue in Vanamann, the district court found that Ocwen could not have willfully violated the FCRA and therefore allowed his summary judgment motion.
On appeal, the Ninth Circuit upheld the district court and cited Vanamann approving. However, he took a somewhat roundabout route in analyzing the case. Rather than going through the simple process of Vanamann, in which the panel assumed that Nationstar had violated the FCRA, but concluded that such violation could not have been intentional, the Marine Rather, the majority were keen to answer the “threshold question of whether the defendant has violated the FCRA”. Marine, 978 F.3d to 671. Addressing this “threshold issue” was important, according to the majority, to “prevent the law in this area from stagnating”. Identifier. The majority basis for this approach was its view that, since a defendant in an FCRA case could “almost always avoid liability as long as an appeals court has[d] not already interpreted “the FCRA provision at issue, if appellate courts simply continued to adjudicate cases on the basis that there had not been a negligent or intentional violation of the FCRA, then” the question of legal interpretation will probably never find an answer ”. Identifier. at 673-74.
Therefore, the majority first considered whether Ocwen’s conduct violated § 1681b (f) (1). Ocwen argued that § 1681b (a) (3) (A) provided him with a qualifying goal because he used borrowers’ credit reports to assess them for loss mitigation options. Identifier. at 675. The borrowers argued that because they left and “returned” their homes prior to Ocwen’s credit inquiries, and because they never expressed any interest in avoiding foreclosure, Ocwen no had no goal allowed. Identifier. at 675-76. In rejecting these arguments, the majority observed that nothing in § 1681b (a) (3) (A) required a consumer to affirmatively request an alternative to foreclosure before a repairer could examine the consumer’s account to determine his eligibility. Further, the US Bankruptcy Code discharge injunction specifically excludes from its scope “the efforts of a secured creditor to seek” periodic payments associated with valid security rather than seeking relief in rem. to enforce the privilege ”. ” Identifier. at 675 (citing 11 USC § 524 (j) (3)). Likewise, it was irrelevant that the borrowers had vacated their homes prior to the relevant credit inquiries, as Ocwen “might reasonably have thought that even a debtor who had vacated their home might be interested in returning if Ocwen made a move. attractive offer. Identifier. at 676. The majority therefore concluded that Ocwen had formulated a qualifying goal for accessing borrowers’ consumption reports under § 1681b (a) (3) (A). In saying, however, the majority sought to modify this decision somewhat when they felt that “[w]Imagine that if a consumer clearly informs the servicer or lender that they have no interest in avoiding foreclosure, then the servicer or lender might not have an authorized goal to continue examining the credit of the customer. consumer. ” Identifier. Then, in a single paragraph, the majority noted its “agreement with the district court that Ocwen did not willfully violate the FCRA.” Identifier. to 676.
Justice Bea concurred with the majority’s result and reasoning regarding their conclusion that Ocwen did not willfully violate the FCRA. Identifier. at 676 (Bea, J., concordant). However, Justice Bea reprimanded the majority for including “a discussion of two issues not essential to the determination of this case”. Identifier. First, Bea J. challenged the majority’s analysis of whether Ocwen’s conduct violated the FCRA, an analysis which he said was “irrelevant to the disposition of the case before us. “. Identifier. Second, he challenged the majority “imagine[ing] a hypothesis, which the plaintiffs have neither argued nor proven, which the majority declares may constitute a statutory violation of the FCRA. ” Identifier. at 677. Judge Bea’s concern about the inclusion by the majority of a hypothetical violation of the FCRA seems particularly valid in the Ninth Circuit, where “the dicta in the opinions of the panel may become the binding law of the circuit”. Identifier. to 679 (citing United States v. Johnson, 256 F.3d 895, 947 (9th Cir. 2001)).
Mortgage agents, at least in the Ninth Circuit, should be reassured by the Court’s finding that these agents retain an authorized purpose to access a borrower’s consumption report even after the borrower’s personal liability under of the mortgage has been discharged, as long as he intends to use the report to assess the borrower for loss mitigation options. However, mortgage agents must remain cautious about the limitations of this authorized purpose provided for by the Marine and should consider adopting a policy to limit or modify future credit requests for loss mitigation accounts when the borrower unequivocally advises the server agent that they are not interested in pursuing options to loss mitigation.