11th Circuit Permits Borrowers to Seek Emotional Distress and Punitive Damages for Mortgage Servicer’s FCRA Violations

On March 25, 2019, the U.S. Court of Appeals for the Eleventh Circuit held that borrowers were entitled to seek punitive damages and damages for emotional distress for a mortgage servicer’s FCRA violations for its failure to accurately report the status of the borrowers’ mortgage loans and for continuing to attempt to collect on nonexistent debt.

The borrowers financed the purchase of a house through two mortgage loans, both of which were serviced by the servicer.  In 2008, the borrowers defaulted, and the parties resolved the resulting foreclosure action through a settlement agreement that required the borrowers to hand over the property, and the servicer to report to the credit reporting agencies that the mortgages were discharged.  After settling a subsequent lawsuit based on the servicer’s failure to discontinue debt collection efforts and false reporting of the borrowers’ delinquency, the servicer fixed the delinquency reporting, but not until after the deadline noted in the settlement agreement.  At the same time, the servicer also incorrectly reported that the borrowers had a balloon payment due in March, 2021.  The borrowers lodged a dispute with the credit reporting agencies, but the servicer incorrectly confirmed the pending balloon payment after an investigation. Then, the servicer began charging for lender-placed insurance for the property, which the borrowers no longer owned.

The borrowers then filed the instant lawsuit, alleging violations of FCRA and state debt collection laws, and for breach of contract.  The district court granted the borrowers’ motion for summary judgment on the FCRA claim, but denied their request for emotional distress and punitive damages.  The district court also granted the servicer’s motion for summary judgment on the borrowers’ state law debt collection claim, and on their breach of contract claim regarding the servicer’s late compliance with the settlement agreement.

The Eleventh Circuit affirmed summary judgment for the borrowers on their FCRA claim.  It found, however, that the borrowers could seek emotional distress damages because they had produced evidence that they had suffered emotional distress because of the FCRA violation, in addition to the emotional distress they suffered previously from the servicer’s prior violations.  The borrowers could also seek punitive damages based on “willful” FCRA violations, which was not limited to intentional conduct; the servicer’s allegedly reckless conduct could be sufficient.  The Eleventh Circuit also overturned the district court’s summary judgment ruling for the servicer on the state law and breach of contract claims, based on the existence of several issues that required factual determinations at trial.  Finally, while the Eleventh Circuit vacated the award of attorneys’ fees the district court had imposed for the servicer’s FCRA violation, it noted that the fees could continue to accumulate, and that the district court should recalculate them at the termination of the litigation.