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Massachusetts Federal District Court Rules that a Demand Notice Referencing an Intent to Seek a Deficiency Judgement Against Discharged Debtor Does Not Violate a Discharge Injunction
Posted in General Matters

The United States District Court for the District of Massachusetts recently granted a motion to dismiss an action against U.S. Bank National Association, as trustee and Select Portfolio Servicing, Inc., brought by a borrower alleging wrongful foreclosure, violation of the state’s consumer protection statute, violation of Fair Debt Collection Practices Act, unenforceability of a note based on the Uniform Commercial Code’s (“UCC”) six-year statute of limitations, and violation of a bankruptcy discharge injunction.  Duplessis v. U.S. Bank National Association and SPS, 2018 WL 4907526 (Oct. 9, 2018).

Of note, the Court found that the UCC’s statute of limitations relating to barring collection on a note “six years after the accelerated due date” does not apply to foreclosures, because a foreclosure is an action in rem and not an action seeking to recover personally from the borrower. See UCC at Article 3, Sec. 118(a).  The Court held that although Section 118(a) may bar a lender from collecting on a note more than six years overdue, it does not prohibit the lender from foreclosing on the mortgage. 

The Court also analyzed foreclosure counsel’s “Notice of Intent to Foreclose Mortgage and Intent to Pursue Deficiency After Foreclosure” (the “Notice”), which was sent to the borrower to give notice of the foreclosure sale and the possibility that the lender may pursue a deficiency following the sale.  The Court analyzed the Notice within the context of the borrower’s claim that the Notice violated his bankruptcy discharge injunction because the Notice stated that the lender may pursue the borrower on a deficiency.  However, the Notice also provided a disclaimer stating that no deficiency following the foreclosure sale would be pursued if the borrower had obtained a bankruptcy discharge.  The Court held that the letter, without more, did not amount to a violation of the bankruptcy discharge injunction.  The Court’s reasoning suggests that the Court may find a lender liable for violation of a bankruptcy discharge injunction if the totality of the communications amount to repeated and continuous efforts on the part of a lender to collect on a debt that has been discharged in bankruptcy.  But here, the Court found that a single letter that included a disclaimer did not amount to such a violation.

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