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Financial Services Law Insights and Observations

District court denies bank’s motion to dismiss; rules homeowner’s claims under California Rosenthal Fair Debt Collection Practices can proceed

Courts State Issues Debt Collection

Courts

On September 5, the U.S. District Court for the Eastern District of California denied a national bank’s motion to dismiss certain alleged violations of both the California Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) and the state’s Unfair Competition Law (UCL) as cited in the homeowner’s first amended complaint. According to the order, the plaintiff alleged, among other things, that the bank engaged in debt collection activities that went “beyond the scope of an ordinary foreclosure process” under the Rosenthal Act “when it attempted to collect on the original amount due under the promissory note rather than the [loan modification] agreement.” The bank countered and argued that when it acted as the mortgage loan servicer for the homeowner in the context of foreclosure proceedings it was not subject to liability under the Rosenthal Act because “courts have held ‘that the Rosenthal Act [is] not applicable to residential mortgage loans.” However, the court rejected the bank’s argument and found, among other things, that (i) the homeowner adequately pleaded the bank engaged in debt collection activities; (ii) as determined by the 9th Circuit, “mortgage servicers may be subject to the Rosenthal Act for collection activities surrounding a loan modification agreement”; and (iii) the plaintiff’s allegations concerning the bank’s debt collection practices may be subject to the Rosenthal Act and are sufficient to withstand the bank’s motion to dismiss. Concerning the alleged UCL violation, the court determined that the plaintiff’s factual allegations supported her claims.

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