[Administrator]

Court Rules Reporting a BK Ride-Through Not a FCRA Violation

On November 26, a federal district court in Washington dismissed on summary judgment a claim that a loan servicer violated the Fair Credit Reporting Act (FCRA) by reporting that the borrowers’ mortgage loan had been discharged in bankruptcy. Dvorak v. AMC Mortgage Services, Inc., 2007 LEXIS 86604 (E.D. Wash., Nov. 27, 2007). The Ninth Circuit recognizes the “ride-through” option, in which debtors filing for bankruptcy may remain in their home without disclosing it as an asset in a Chapter 7 bankruptcy filing by continuing to make the payments on the mortgage. The court held that even though the debtors did not list their mortgage as a debt in a bankruptcy proceeding, they were still discharged from personal liability on the mortgage note by the bankruptcy, so that the servicer’s report was accurate and did not violate FCRA. The court also noted that, even if the report had been inaccurate, the consumers had no private right of action against the servicer because they did not dispute the item with a consumer reporting agency, which would have triggered a duty for the servicer to investigate once it received notice of the dispute from the agency. The court also dismissed the consumers’ common-law defamation claims, holding that they were preempted by FCRA, which prohibits the same conduct. Finally, the court dismissed without prejudice a common-law claim regarding overcharge on the payoff amount for lack of jurisdiction.
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David Szwak
Chairman, Consumer Protection Section, Louisiana State Bar Association
Bodenheimer, Jones & Szwak, LLC
416 Travis Street, Suite 1404
Mid South Tower
Shreveport, Louisiana 71101
318-424-1400
Fax 318-221-6555