TAMPA, FL – Debt collectors who bring foreclosure actions against defaulted homeowners are often the target of consumers claiming a debt collection violation.  In a recent lawsuit filed in the U.S. District Court in Tampa, a defaulted homeowner argued that the foreclosing attorney violated the Fair Debt Collection Practices Act when the attorney sought to recover monies that its lender client paid to protect its collateral while the homeowner pursued his remedies in bankruptcy.  The consumer argued that the foreclosing attorney could not lawfully collect such “post judgment advances” without a court order.  The Federal Judge disagreed.

The U.S. District Court ruling on post-judgment advances was the first of its kind in Florida.  As the number of foreclosures statewide continues to rise, this ruling will significantly impact the way cases like this one are handled.  Homeowners seeking to avoid the sale of their property by filing bankruptcy should be aware that their lenders continue to incur costs as the foreclosure action is stayed, and those lenders have the right to collect those costs without obtaining an additional court order.  In a ruling on March 13, U.S. District Court Judge Richard A. Lazzara made clear that attorneys representing mortgage lenders may lawfully collect post judgment advances without a court order. 

According to papers filed in the lawsuit, homeowner Ronald Holliston defaulted on his mortgage loan held by Chase Manhattan Mortgage Corporation.  Chase hired a Florida law firm to file a foreclosure action against Holliston, which Holliston did not contest.  When the state court judge entered a foreclosure judgment against Holliston, he filed for Bankruptcy under Chapter 13, and was allowed to reinstate his defaulted mortgage loan.  Meanwhile, Chase continued to advance money for taxes, insurance and attorneys to protect its interests in the bankruptcy.  When Holliston wanted to payoff the balance of his mortgage loan, the law firm included Chase’s post judgment advances. 

After he paid off the loan and the foreclosure was dismissed, Holliston sued the foreclosure attorneys in Federal Court.  Suzanne Hill, partner at RumbergerKirk, represented the law firm.  Hill argued that there was no violation of the fair debt act because the law firm collected lawful and legitimate debts that the homeowner owed under the terms of his mortgage.  The Judge agreed, stating that a lender’s rights under its mortgage to collect all costs advanced to protect its collateral and the homeowner’s obligation to pay those costs survive the entry of a foreclosure judgment.  As such, lenders and their attorneys may lawfully collect those post judgment advances without obtaining a court order. 

RumbergerKirk Partner Suzanne Hill works out of the firm’s Orlando office.  She specializes in commercial litigation, including business disputes, securities litigation, consumer litigation, professional liability, intellectual property, class actions and employment litigation.  

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RumbergerKirk provides litigation and counseling services in a wide range of civil practice areas including products liability, commercial litigation, intellectual property, environmental, employment, insurance, professional liability, health care and administrative law. Offices are located in Orlando, Tampa, Miami, Tallahassee and Birmingham, Alabama.