Belin v. Litton Loan

[David A. Szwak]

Belin v. Litton Loan Servicing, LP
Slip Copy, 2006 WL 1992410
M.D.Fla.,2006.
Jul 14, 2006

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B. Litton's Status as a Debt Collector
Next, Defendants argue that Plaintiffs' claims should be dismissed, because Litton is not a debt collector under the FDCPA. The FDCPA defines a debt collector 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. § 1692a(6). Excluded from the definition of a debt collector is "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity ... concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F)(iii). Thus, "a debt collector does not include the consumer's creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned." Perry v. Stewart Title Co., 756 F.2d 1197, 1208 (5th Cir.1985) (citations omitted).
Defendants argue that Litton is not a debt collector, because Plaintiffs allege in the complaint that when Litton obtained the mortgage note, the loan was erroneously asserted to be in default when in fact it was not actually in default due to Mr. Belin's timely payments. As such, Defendants argue that since Plaintiffs allege that timely payments were made and the loan was not actually in default, Litton is not a debt collector, because it obtained the loan at a time when the loan was not in default. As further support for their position that the loan went into default after Litton obtained it (i.e., after September of 2005), Defendants direct the Court to the mortgage foreclosure complaint that is attached to the complaint in this case and point to paragraph 6, which alleges that the mortgage note is in default due to the non-payment of the October 1, 2005 installment payment.
*3 The Court rejects Defendants' argument that the complaint is due to be dismissed at this time, since Plaintiffs allege in the complaint that Litton considered the loan to be in default at the time that it took assignment of it. While Plaintiffs allege that the loan was not actually in default at that time--rather, they contend that Litton erroneously determined it to be in default at that time--the Court finds that the determination as to whether Litton is a debt collector turns on whether Litton acquired the loan as a debt in default and whether its collection activities were based on that understanding. See Schlosser v. Fairbanks Capital Corp., 323 F.3d 534 (7th Cir.2003).
In Schlosser, the court analyzed the issue of whether an entity is a debt collector if they mistakenly assert that a debt is in default, when in fact it is not. See id. at 537. The Schlosser court found that in such a case, whether the entity was a debt collector depended on whether the entity treated the debt as being in default at the time that it acquired the debt. See id . at 538. Specifically, the Schlosser court explained:
Focusing on the status of the obligation asserted by the assignee is reasonable in light of the conduct regulated by the statute. For those who acquire debts originated by others, the distinction drawn by the [FDCPA]-- whether the loan was in default at the time of the assignment--makes sense as an indication of whether the activity directed at the consumer will be servicing or collection. If the loan is current when it is acquired, the relationship between the assignee and the debtor is, for purposes of regulating communications and collection practices, effectively the same as that between the originator and the debtor. If the loan is in default, no ongoing relationship is likely and the only activity will be collection. But if the parties to the assignment are mistaken about the true status, that status will not determine the nature of the activities directed at the consumer. It makes little sense, in terms of the conduct sought to be regulated, to exempt an assignee from the application of the FDCPA based on a status it is unaware of and that is contrary to its assertions to the debtor. The assignee would have little incentive to acquire accurate information about the status of the loan because, in the context of the mistake in this case, its ignorance leaves it free from the [FDCPA's] requirements.
Id.
As such, at this stage of the case, construing the allegations in the complaint in the light most favorable to Plaintiffs, the Court finds that Plaintiffs have sufficiently alleged that Litton believed that it acquired the loan as a debt in default and that Litton's collection activities were based on that understanding. Defendants may challenge this allegation in a motion for summary judgment or at trial. Furthermore, the Court rejects Defendants' contention that the allegation in the foreclosure complaint that default did not occur until after October 1, 2005 is sufficient to support a finding that the debt was not considered to be in default at the time that Litton obtained it, since the allegations in the foreclosure complaint are contrary to Plaintiffs' allegations in the complaint in the instant case. Accordingly, the Court denies Defendants' motion on this issue.