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Wednesday, January 22, 2020

California court rules mortgage companies can be considered debt collectors under Rosenthal Act

By Elizabeth Alt | Mar 28, 2018

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SAN DIEGO (Legal Newsline) – On March 13, California’s 4th Appellate Court, Division One issued a ruling that reversed the San Diego County Superior Court's decision that favored a mortgage servicer, finding that mortgage companies can be considered debt collectors under the state's Rosenthal Fair Debt Collection Practices Act.

The decision that rejected previous courts' definitions that excluded mortgage providers from “debt collectors” was unanimous, with Judge Cynthia Aaron writing the court opinion, and Judge Judith Haller and Judge Gilbert Nares concurring.

Aaron said in the appellate decision, “It is clear that the Rosenthal Act is a civil statute that was enacted for the protection of the public...The statute should be construed broadly in favor of protecting the public.

"Rosenthal Act's definitional language is sufficiently broad to include mortgage lenders and/or mortgage servicers within its purview, we conclude that mortgage lenders and mortgage servicers can be 'debt collectors' under the Rosenthal Act.”

Edward Davidson sued Seterus Inc. and parent company International Business Machines (IBM) in 2016 on behalf of himself and other people affected over allegations of violations of the Fair Debt Collection Practices Act and the Unfair Competition Law over allegedly harassing debt collection practices. The defendants claimed they are not debt collectors and cannot be sued under the FDCPA and UCL.

Once Seterus took over his mortgage from SunTrust in 2012, Davidson says the harassing collection calls demanding he make payments began before Seterus had issued his loan number and before his payment due date. 

Davidson alleges that although his mortgage payments were not late and the statutory grace period had not passed, employees of Seterus called his cellphone at all hours, would call repeatedly if he did not answer, and frequently hung up on him. Davidson claims between 2012 and 2015, he received hundreds of harassing phone calls from the defendant.

Davidson states he and other borrowers suffered economic harm and claims that he lost potential income as he spent countless hours dealing with the harassing phone calls, as well as emotional distress.

The trial court agreed with the defendant, finding that it is not considered a debt collector. Although the trial court recognized “the existence of a split of authority in the federal courts as to whether the Rosenthal Act's definition of 'debt collector' includes mortgage servicers,” it ultimately sided with previous court decisions that ruled a mortgage servicer cannot be a debt collector.

Aaron stated that “the conduct that Davidson alleges that the defendants engaged in—i.e., the harassing telephone calls at all hours of the day, and the threats of negative credit reporting and threats to foreclose—is precisely the type of conduct that the Legislature wanted to protect consumers against when it enacted the Rosenthal Act.”

Aaron stated that “there is nothing in the statutory definition of 'consumer debt' or 'consumer credit transaction' that would exclude a debt that otherwise comes within the terms of the Rosenthal Act merely because the debt is secured by real or personal property.”

Emphasizing that the purpose of the FDCPA is "to eliminate abusive debt collection practices by debt collectors,” the appellate court found that Seterus and IBM are considered debt collectors under the Act.

The case has been remanded back to trial court for further proceedings.

The plaintiff is represented by Glenn A. Danas, Melissa Grant, Liana C. Carter and Arnab Banerjee of Capstone Law.

Defendants are represented by Larson O'Brien, Stephen G. Larson, Robert C. O'Brien and Paul A. Rigali and Steven A. Haskins.

California Court of Appeal 1st Appellate District Division One, case number D071502

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California 4th District Court of Appeal