Del Rio v. McCabe, Weisberg & Conway, LLC

Background

Alfred Del Rio and Olivia Del Rio obtained a $536,000 mortgage on property identified in the opinion as 5910 Tyndall Avenue, Bronx, New York. They defaulted on the loan. BoNYM or its predecessor filed a foreclosure action in 2009, and the debt was accelerated, meaning the full balance was declared due. BoNYM voluntarily discontinued that action on September 14, 2015.

Shellpoint sent the plaintiffs monthly mortgage statements from November 2018 through October 2019. In March 2019, it also sent letters including a notice of default telling the plaintiffs to pay all amounts due to cure the default. In August 2019, McCabe filed a second foreclosure action for BoNYM.

The plaintiffs alleged that the defendants violated the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692, by attempting to collect the debt through false, deceptive, or misleading means. Their theory was that the defendants should have told them that the 2019 foreclosure action was barred by the statute of limitations. They separately alleged that Shellpoint violated 15 U.S.C. § 1692g by failing to include required information in an initial debt-collection communication. They also asserted a claim under New York General Business Law § 349 and sought to bring class claims.

FDCPA Section 1692e Claim

Section 1692e prohibits false, deceptive, or misleading representations or methods used to collect a debt. The court assumed, without deciding, that the FDCPA applied to the defendants and the foreclosure action.

The court relied on the New York Court of Appeals’ decision in Freedom Mortgage Corp. v. Engel. Under that decision, voluntarily withdrawing a foreclosure action generally revokes an earlier acceleration of the mortgage debt unless the noteholder made a contemporaneous statement to the contrary. When the borrower later defaults, the creditor may accelerate the then-outstanding debt again, starting a new six-year limitations period for a foreclosure action.

Applying that rule, the court held that the 2009 foreclosure action accelerated the debt but that BoNYM’s voluntary discontinuance in 2015 revoked the acceleration. The plaintiffs alleged another default in March 2019, and the defendants filed the second foreclosure action in August 2019, within six years. The court therefore found that the 2019 action was not time-barred.

The court also noted that, when the 2019 action was filed, the law on the effect of voluntary discontinuance was not settled, although most courts addressing the issue had reached a result favorable to the defendants. The court concluded that the defendants’ failure to tell the plaintiffs they might have a statute-of-limitations defense did not make their conduct false, deceptive, or misleading under the FDCPA. The § 1692e claim was dismissed under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a complaint does not plausibly state a legal claim.

FDCPA Section 1692g Claim

The plaintiffs alleged that Shellpoint’s monthly statements and March 2019 notice of default were initial communications that triggered § 1692g’s disclosure requirements.

The court held that the monthly statements did not support an FDCPA claim. Mortgage servicers are required to send such statements, and the plaintiffs did not allege that the statements contained language demanding payment as part of debt collection or otherwise went beyond ordinary mortgage statements.

The court found that the March 2019 default notice did contain language—telling the plaintiffs to cure the default and pay all amounts due—sufficient to allege that it was sent in connection with debt collection. But § 1692g allows a debt collector to provide the required information in a written notice sent within five days after the initial communication. The plaintiffs alleged that the notice lacked required information, but they did not allege whether a later written notice was sent or what it contained. The court therefore dismissed the § 1692g claim as insufficiently pleaded.

State-Law Claim and Class Claims

After dismissing all federal claims, the court declined to exercise supplemental jurisdiction over the remaining claim under New York General Business Law § 349. Supplemental jurisdiction is a federal court’s authority to hear related state-law claims in a case that includes federal claims. The court concluded that the usual considerations of judicial economy, convenience, fairness, and respect for state courts favored declining that jurisdiction after the federal claims were dismissed.

The defendants also moved to strike the class claims. The court did not decide those motions because the substantive claims on which the proposed class claims were based had all been dismissed. The court granted the defendants’ motions to dismiss and directed the Clerk to close the case. The opinion does not state a separate disposition for the § 349 claim beyond declining supplemental jurisdiction over it.

Effect of the Ruling

The ruling ended the federal case at the pleading stage. The FDCPA claims against all defendants were dismissed, the court declined supplemental jurisdiction over the New York claim, and the motions to strike the class claims were not addressed. Judge Vernon S. Broderick signed the Opinion & Order on November 16, 2021.