Two Words Can Be Expensive
You just never know.
These days, there are many, many loans that are not being repaid. The large majority of foreclosures undoubtedly happen because a loan was not repaid. But what happens when a loan is in fact repaid, but the lender claims it wasn’t?
The United States Supreme Court ruled on just such a case in Jerman v. Carlisle (2010) 130 S. Court 1605. In the Jerman case, a lawyer (who was acting as a debt collector) filed a lawsuit against a borrower. The lawyer sought to foreclose a mortgage from a lender. The complaint that was filed and served on the borrower included a Notice to the borrower that the mortgage debt would be presumed valid unless the borrower disputed the debt “in writing.”
The borrower’s lawyer sent a letter to the debt collector lawyer challenging the debt. The lender eventually confirmed that the debt had been paid in full, and the debt collector lawyer dismissed the lawsuit.
After the debt collector lawyer dismissed the lawsuit, the borrower filed her own lawsuit against the debt collector lawyer for violation of the Fair Debt Collection Practices Act (which is sometimes known as the “FDCPA”). The FDCPA is a federal law that contains certain steps that debt collectors must follow when collecting a debt. According to the FDCPA, a debt collector must send a borrower a statement that a debt will be presumed valid unless the borrower disputes the debt within 30 days. However, the FDCPA does not provide that the borrower must dispute the debt “in writing.” Instead, the FDCPA only provides that the debt will be presumed valid unless the borrower disputes the debt. Apparently, the borrower can dispute a debt by a telephone call or some way other than “in writing.”
The borrower’s lawsuit claimed that the debt collector lawyer had violated the Fair Debt Collection Practices Act by requiring that the borrower dispute the debt in writing instead of just disputing the debt. The debt collector lawyer claimed that this mistake was a good faith error and that the debt collector therefore shouldn’t be liable to the debtor for violating the FDCPA.
The Supreme Court disagreed, and held that the debt collector lawyer could in fact be liable for violating the FDCPA by requiring that the borrower dispute the debt “in writing,” when the FDCPA didn’t require the borrower to dispute the debt “in writing.”
In this case, the phrase “in writing” consisted of two very expensive words. Cases don’t usually get filed in the Supreme Court. Instead, they almost always get filed in a trial court, and they usually reach the Supreme Court only on appeal. In this situation, the borrower filed her lawsuit in Federal District Court, which eventually held that the debt collector lawyer wasn’t liable because the error was made in good faith. The Court of Appeals for the Sixth Circuit agreed, and held that the debt collector lawyer wasn’t liable. However, on further appeal the United States Supreme Court reversed the Court of Appeals and found that the debt collector lawyer could be liable for requiring the debt to be disputed “in writing.” And that’s not the end of the story. The Supreme Court didn’t render a final judgment in its opinion but instead sent it back to the lower court for further proceedings.
The FDCPA allows a court to award actual damages to a borrower. Where a violation is made through a good faith error, the FDCPA allows a court to also award a borrower up to one thousand dollars in additional damages. In class actions, this additional damage award can be $500,000 or 1% of the worth of the debt collector, whichever is less. But a debt collector can also be liable for a borrower’s attorneys fees, which in this case could be very, very expensive. (Where a lender violates the FDCPA with actual knowledge, the lender can incur civil penalties of up to $16,000 per day.)
Those two additional words “in writing” proved to be a very costly error for the debt collector. But that is sometimes the nature of the law. Words which are imprudently, or improperly, or unlawfully spoken or written can sometimes result in a big problem, and a costly situation.