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From Banking and Finance Law Daily, August 24, 2018

FCRA violation found where mortgage servicer failed to report TPP

By Nicole D. Prysby, J.D.

A consumer properly demonstrated a threshold showing of inaccuracy in a Fair Credit Reporting Act claim that his mortgage servicer failed to modify his mortgage despite having fulfilled the conditions of a trial modification/period plan (TPP), held the Sixth Circuit Court of Appeals. After missing two mortgage payments in 2011, the consumer obtained a TPP which required him to make three timely payments and send in documentation, at which point his mortgage would be permanently modified. The consumer fulfilled his end of the bargain, but the servicer did not immediately modify the mortgage and the mortgage was transferred to a second servicer. Eventually, the modification was made, but two years later, the consumer discovered that both servicers had reported his mortgage payments as past due. The court held that he could show inaccurate reporting because the TPP was an offer for permanent modification, which he accepted by satisfying the conditions contained in the TPP. While the TPP itself was not a permanent loan modification agreement, it was an enforceable agreement to modify the loan and should have been reported to the credit reporting agencies (CRAs) after the consumer disputed the information. The court also held that the typewritten name of a financial institution could satisfy the signature requirement of the statute of frauds, because the party typing the institution’s name intended to authenticate the document and was authorized to do so. Finally, the consumer’s failure to make two mortgage payments was not a substantial breach of the agreement, so his breach of contract claim against the mortgage servicer could go forward (Pittman v. Experian Information Solutions, Inc., et al., August 23, 2018, Clay, E.).

Background. The consumer sued both mortgage servicers for FCRA violations and breach of contract. Despite the consumer fully performed his duties under the agreement, the mortgage servicer never made the TPP permanent in writing. However, the consumer continued to make payments at the reduced rate. Several months later, he received a notice that the debt servicer was being modified and he should send his payments to a new company. The new mortgage servicer sent him a notice of default and told him that the TPP modification did not transfer over because the former mortgage servicer never properly reported it. Eventually, the two mortgage servicers communicated about the details and the loan modification was made permanent.

Two years later, the consumer obtained a credit report which showed that both mortgage servicers had reported his mortgage payments as past due. He sent letters disputing the information and the mortgage servicers concluded that the loan payments were untimely as reported because there was no loan modification agreement and the consumer was not making the payments under the original contract. The consumer sued the mortgage servicers for FCRA violations and sued the second mortgage servicer for breach of contract. The defendants moved for summary judgment, which the district court granted, holding that the consumer could not show that the servicers made an error in reporting his loan payments as overdue, and that his two missed mortgage payments constituted a substantial breach of the parties’ agreement, which precluded his contract claim. The consumer appealed.

FCRA claim. There was no question that the consumer reported the dispute to the CRAs or that the CRAs notified the servicers; the dispute centered on whether the servicers failed to reasonably investigate or rectify the disputed charge. The district court never reached that question, because it held that there were no reporting errors. The Sixth Circuit agreed that a threshold showing of inaccuracy or incompleteness was necessary for the consumer to succeed on his FCRA claim, but held that the consumer had made a sufficient showing. He could show inaccurate reporting because the TPP was an offer for permanent modification, which he accepted by satisfying the conditions contained in the TPP. Although the TPP itself was not a permanent loan modification agreement, it was an enforceable agreement to modify the loan. It contained an offer to permanently modify the mortgage if the consumer made timely payments and provided required documentation. The consumer fulfilled those conditions and there was no language in the TPP stating that the servicer had to approve of the conditions.

The TPP also did not fail as an "agreement to agree." While it did not contain the exact figure that would be contained in a permanent modification agreement, it provided the formula that would be used to calculate the amount and provided a temporary figure that was based on the same formula. Those terms were clear and definite enough to constitute an enforceable contract. The TPP met statute of frauds requirements because it was in writing and was sent by the department that had the authority to offer loss mitigation alternatives. The typed entity-servicer’s name was sufficient to satisfy the statute of frauds, because Michigan law does not require the signature of an individual. Requiring the signature of an individual would allow lenders to make detailed promises to customers and affix the lender’s name, and deceive even the most sophisticated customer into believing that an enforceable promise had been made and could be relied upon.

The consumer could also show incomplete reporting by the servicers because he had been granted a TPP and the servicers did not report its existence. The servicers knew about the TPP, knew that the consumer should have received a permanent modification, and knew or should have known that the information was being reported inaccurately.

Breach of contract claim. The court held that the consumer’s failure to make two mortgage payments was not a substantial breach of the agreement. The missed payments did not cause a complete failure of consideration or prevent further performance by the mortgage servicer, which continued to accept payments and never instituted foreclosure proceedings.

Other issues. The court also held that the district court correctly denied the consumer’s request to amend his complaint for the fourth time, because he waited more than a year from the time he knew he needed to amend the complaint and provided no justification for the delay. The lower court also properly denied his request to compel depositions where he made the motion four months after the discovery deadline.

The case is No. 17-1677.

Attorneys: Edward Albert Mahl (Law Offices of Edward A. Mahl) for Howard Pittman.

Companies: Equifax Information Services, LLC; Experian Information Solutions, Inc.; Trans Union, LLC

MainStory: TopStory FairCreditReporting KentuckyNews Loans MichiganNews Mortgages OhioNews TennesseeNews

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