January 29, 2016
by Aaron L. Squyres
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)
The United States District Court of New Jersey recently issued an opinion that will have an immediate impact on mortgage default law firms in New Jersey — and which could ultimately have a far-reaching impact on the mortgage default legal industry. In the case of Psaros v. Green Tree Servicing, LLC, and Stern Lavinthal & Frankenburg LLC, Case No. 15-4277 (D.N.J. Dec. 21, 2015), the court denied Stern Lavinthal’s motion for judgment on the pleadings, and found that the firm was liable on a claim under the Fair Debt Collection Practices Act based on the firm’s reliance on a client’s debt figures.
The underlying facts are that Psaros defaulted on his non-escrowed mortgage loan, and Bank of America (by way of its counsel Stern Lavinthal) filed a foreclosure complaint. The loan was subsequently transferred to Green Tree, and Green Tree requested proof of property insurance. Psaros alleged that he tendered proof of the insurance in the manner requested. Green Tree later advised Psaros that force-placed insurance had been secured on the property.
Stern Lavinthal moved for entry of judgment and, as part of that motion, it filed a “Certification of Proof of Amount Due,” which included the sum of $10,974.37 for “Home Owners Insurance Premiums.” The Stern Lavinthal attorney submitted a “Certification of Diligent Inquiry,” in which she stated that she had been advised by a Green Tree representative that the representative had personally reviewed the affidavit of amount due and confirmed the accuracy of that document. The Stern Lavinthal attorney then executed the certification based on her communication with the Green Tree representative, as well as her own inspection of the documents and other diligent inquiry.
Psaros filed suit against Green Tree and Stern Lavinthal two months later. He alleged a violation of the Fair Debt Collection Practices Act, 15 USC § 1692e, based upon a false, deceptive, and/or misleading representation about the amount of debt. Specifically, a demand for payment of insurance premiums that were not actually owed under his loan agreement. Stern Lavinthal subsequently filed its motion for judgment on the pleadings.
The court denied the motion, finding that “[a] plain reading of the statute leads to the conclusion that a violation has occurred.” The court went to state that “[b]ecause the statute’s language is plain, the Court’s function is ‘to enforce it according to its terms’ so long as the disposition required by that [text] is not absurd.’” The court then added that its finding of a violation “is not absurd; rather, it is consistent with the Third Circuit’s recent decisions in McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240, 248 (3d Cir.) cert. denied, 135 S.Ct. 487 (2014) and Kaymark v. Bank of America, N.A., 783 F.3d 168 (3d Cir. 2015).”
In McLaughlin, the court found liability on the part of the law firm for including not-yet-incurred fees in a demand letter. In Kaymark, the court extended this not-yet-incurred rationale to a formal pleading. It is important to note that the Psaros decision can be distinguished from the McLaughlin and Kaymark cases, in that the law firm in Psaros was found liable due to alleged false representations relating to the client’s figures — not its own fees.
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