Hrebal v. Nationstar Mortgage LLC

Background

Charles Hrebal brought a claim under the Fair Credit Reporting Act (FCRA), a federal law governing the accuracy and handling of consumer credit information. Seterus serviced Hrebal’s mortgage loan. Before Seterus began servicing the loan, CitiMortgage filed a bankruptcy claim listing Hrebal’s pre-bankruptcy mortgage arrears as $6,152.37, although the record indicated that two additional payments may have been owed. CitiMortgage never amended that claim, and Seterus did not do so after taking over servicing.

Hrebal completed his modified Chapter 13 plan in October 2015 and received a bankruptcy discharge. Seterus later reported Hrebal as delinquent to credit reporting agencies. Hrebal disputed the reports through the agencies. Seterus employees reviewed recent payment information but did not investigate the older servicing records or contact Seterus’s bankruptcy department. They also did not identify the account as disputed in their responses, and their responses contained inconsistent delinquency dates and amounts.

Hrebal alleged that the reporting prevented him from receiving a favorable mortgage refinancing or loan modification and caused embarrassment, stress, anxiety, and other emotional harm. Seterus argued that its reporting was accurate, that it had not acted willfully or recklessly, and that Hrebal could not prove damages caused by the reporting. Both parties moved for summary judgment, which asks whether the evidence requires judgment without a trial.

Bankruptcy-law question

The parties disputed whether bankruptcy law allowed Seterus to enforce the two pre-bankruptcy mortgage payments that were not included in the proof of claim or the confirmed Chapter 13 plan. The court explained that courts had reached different conclusions on similar issues. It declined to decide that question because it could resolve the FCRA case on Hrebal’s alternative theory: that Seterus failed to recognize and report that he had a potentially legitimate dispute about the delinquency.

FCRA liability

The court concluded that a reasonable jury could find Seterus’s investigations inadequate. The record could support findings that Seterus had access to information showing that Hrebal’s only apparently missing payments were from before the bankruptcy, that employees failed to review that information, that they did not contact the bankruptcy department, and that Seterus issued inconsistent responses.

The court also held that a jury could find the reporting materially misleading even if it was technically accurate under one interpretation of bankruptcy law. In the court’s view, failing to identify the delinquency as disputed could have created the misleading impression that Hrebal was financially irresponsible, particularly because he had completed a lengthy bankruptcy plan and had made his regular mortgage payments for more than five years. The court therefore found a genuine dispute of material fact about whether Seterus breached its FCRA duties.

Willfulness

The court found that a reasonable jury could determine that Seterus acted willfully or recklessly. The evidence included Seterus’s inconsistent responses to Hrebal and the credit reporting agencies and testimony that Seterus had a blanket practice of not reporting a debt as disputed in response to an automated dispute notice. Those facts could support statutory or punitive damages if a jury found an FCRA violation.

Actual damages

The court granted Seterus summary judgment on Hrebal’s claim that the credit reporting caused Embrace Home Loans to deny his proposed refinancing. The court found no evidence from which a reasonable jury could conclude that the credit reporting caused that denial. The loan officer attributed the denial to a payoff statement showing a late payment, and the relevant credit report did not show Hrebal’s mortgage as delinquent.

The court denied summary judgment on Hrebal’s emotional-distress damages. Hrebal testified about months of stress, anxiety, embarrassment, a short temper, and sleep-related difficulties, and his wife provided corroborating testimony. Viewing the evidence in Hrebal’s favor, the court found a genuine dispute about whether Seterus’s credit reporting caused emotional distress.

Disposition

The court ordered that Seterus’s motion for summary judgment was GRANTED IN PART AND DENIED IN PART. It ordered that Hrebal’s motion for partial summary judgment was DENIED. The remaining issues were set for trial.