In July 2009, Ms. Wallace sued WAMU, Wells Fargo, and the foreclosure firm, for violations of the FDCPA. Specifically, Ms. Wallace alleged that the foreclosure firm made false and deceptive representations in connection with the collection of a debt because at the time the foreclosure complaint was filed WAMU was not the holder of the note or the mortgage. The district court dismissed Ms. Wallace’s complaint because it concluded that “failure to record an assignment of mortgage before filing a foreclosure action is not a deceptive practice under the [FDCPA]. Ms. Wallace appealed.
The Sixth Circuit Court of Appeals reversed the judgment of the district court. The Sixth Circuit found that a law firm makes a “false, deceptive and misleading representation” when it files a complaint that falsely alleges that the plaintiff is the owner and holder of the note and mortgage. The court, however, did not stop there.
The court determined that a violation can occur even if, as a matter of state procedural law, a lender can cure a real-party in interest defect by making the necessary transfers and assignments at any time before judgment. Stated another way, if the complaint contains factually inaccurate statements that tend to “mislead or confuse,” for the purposes of the FDCPA the lender’s ability to fix the problem after the fact is immaterial. In essence, this decision has the potential to render the “can I file before the paperwork is in order” debate that is raging before the Ohio Supreme Court moot and irrelevant.
Finally, it is noteworthy to point out that while this case involved a suit brought against the law firm, the prohibition against false and misleading representations applies to anyone that is considered to be a “debt collector” under the FDCPA. In turn, the definition of a “debt collector” includes a servicer or assignee if the loan was in default at the time of the transfer. Accordingly if the plaintiff, or the servicer, are considered to be “debt collectors” they may be vicariously liable for any false or misleading statements in the complaint.