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South Carolina: Federal Court finds Law Firm Violated FDCPA Provisions in Demand Letter to Homeowners

Posted By USFN, Wednesday, October 17, 2018
Updated: Tuesday, October 16, 2018

October 17, 2018

by John S. Kay
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

It seems that law firms in the default servicing or debt collection industry have always had a target on their backs when it comes to the Fair Debt Collection Practices Act (FDCPA). Still, a recent decision may at least provide some guidance on avoiding certain FDCPA issues. In the case of Park v. McCabe Trotter & Beverly, P.C., No. 2:17-cv-657-RMG (D.S.C. Aug. 14, 2018), the U.S. District Court for the District of South Carolina issued an order and opinion with implications for mortgage servicers and their counsel. In Park, the court found that a debt collector law firm (McCabe) violated provisions of the FDCPA while attempting to collect past-due homeowners’ association (HOA) dues and assessments.

The plaintiffs were homeowners in a housing development with a homeowners’ association. The HOA had previously retained the law firm to represent it in the collection of dues and assessments pursuant to the covenants and restrictions established for the development. The plaintiffs ceased paying assessments in 2006. In 2012, the HOA began imposing additional fines for numerous alleged violations, which included some daily fines. In 2015, the HOA requested that the law firm collect the unpaid dues and assessments from the plaintiffs.

The plaintiffs alleged that the law firm’s attempts to collect attorneys’ fees, in demand letters sent to the plaintiffs, were in violation of the FDCPA as those fees were not authorized by the development’s covenants and restrictions. The court agreed with the plaintiffs and found that attorneys’ fees were not authorized by the covenants and restrictions, unless they were part of the amount entered as a judgment in a legal action. The lesson is clear here — do not attempt to collect attorneys’ fees, or any other fees, until authorized by the contract in question.

Court’s Analysis
A more troubling aspect of the case, as far as law firms are concerned, deals with the way the debt was listed in a letter sent by the law firm to the plaintiffs. In the letter, the law firm stated that the plaintiffs’ “balance including attorneys’ fees is $19,965.76.” The court found the letter to be in violation of the FDCPA by failing to explain the lump-sum debt that the plaintiffs allegedly owed. The court attached significance to the fact that the letter simply indicated a total amount of debt (without further explanation or breakdown) and found that in doing so, the law firm “hid the true character of the debt.” As the letter only provided a lump-sum amount claimed to be due, the plaintiffs had no way to determine which parts of that figure constituted their unpaid fines, assessments, attorneys’ fees, or costs; and, therefore, could not assess the validity of the debt. The court found this to be a violation of sections 1692(e) and 1692(f) of the FDCPA and granted the plaintiffs’ motion for summary judgment.

In reaching its decision, the district court cited the Seventh Circuit case of Fields v. Wilber Law Firm, P.C., 383 F.3d. 562 (7th Cir. 2004), which also dealt with a lump-sum debt amount listed in a collection letter. The court’s opinion in Fields indicated that a possible, and easy, solution to compliance with sections 1692(e) and section 1692(f) would be to itemize the individual charges that comprise the total lump sum provided in the letter. In his decision in the Park case, Judge Gergel emphasized this language in his order granting summary judgment to the plaintiffs, making it clear that the law firm’s letter should have had an itemized breakdown of the lump-sum amount listed as due and owing by the plaintiffs.

Closing Words
Demand letters in South Carolina must contain a breakdown of any lump-sum debt totals in order to not run afoul of the FDCPA. Debt collectors can no longer list only a total debt figure in their collection or validation letters to borrowers without FDCPA implications. The question remains as to the detail required to avoid hiding “the true character of the debt.” For example, would a further breakdown be required for any items listed as “corporate advances” or “recoverable balance”? Since the district court in South Carolina relied on a Seventh Circuit opinion in the Park case, a review of that circuit’s opinions would seem to be in order for future guidance.

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