FCRA Suit Over Virus Forbearances Kicked To Fed. Court

By Melissa Angell
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Law360 (November 16, 2020, 11:22 PM EST) -- A mortgage servicer on Monday removed to federal court a lawsuit that accuses it of violating the Fair Credit Reporting Act by reporting loans in forbearance as delinquent despite a federal pandemic relief law letting certain borrowers postpone payments.

The trip to California federal court is the latest in a proposed class action that named plaintiff Eric T. Mitchell filed against Specialized Loan Servicing LLC in state court in September. Mitchell alleges the mortgage servicer violated the FCRA as amended by the Coronavirus Aid, Relief and Economic Security Act by reporting loan payments subject to forbearance during the pandemic as late or deficient to credit reporting bureaus and other third parties.

Despite protections afforded by the CARES Act and an alleged contract with his lender, Mitchell argues that SLS reported his mortgage payment as delinquent, which negatively impacted his credit score.

"SLS had an affirmative duty of care under the contracts, CARES Act and/or other law not to report borrower's unmade payments as late or deficient," the complaint says. "It was reasonably foreseeable to SLS that if it failed to do so, and reported forborne payments as late, delinquent or otherwise negatively, substantial financial and/or other injury would result to borrowers like plaintiff."

Mitchell applied for an auto loan at a California dealership in August to buy a new car, but before the transaction could be completed, he learned from the dealer that he was not eligible for the loan he applied for, according to the complaint. After looking into his credit report, Mitchell learned that the mortgage servicer reported his payments as delinquent.

Because of the negative reports and decline in his credit score, Mitchell claims he was not able to purchase the vehicle and alleges that he suffered financial loss because his diminished credit score prevents him from taking advantage of low interest rates.

Under the CARES Act, consumers are able to declare forbearance by submitting a request to their mortgage servicer, though privately held loans are not eligible for this relief.

In his suit, Mitchell accuses SLS of breaching its contract and seeks to represent a nationwide class of borrowers that had delinquent payments reported to third parties despite having a forbearance plan or extended assistance agreement with SLS.

According to the complaint, more than 100 borrowers qualify to be included in the class or California subclass.

The suit seeks to immediately prevent SLS from reporting delinquency to credit bureaus and for SLS to remedy any negative credit score that impacted borrowers. It also requests that SLS notify borrowers in forbearance agreements about the possibility of negative reports being made that could affect their credit.

"Defendant had a duty of care to only make proper reports to credit bureaus and other third parties," the complaint says. "Defendant breached that duty."

Mitchell and counsel listed in his state court complaint did not immediately respond to Law360's request for comment Monday, nor did counsel and representatives for SLS.

Mitchell's current counsel information could not be immediately verified. In his state court complaint, he was represented by Caleb Marker, Flinn Milligan and Arielle Canepa of Zimmerman Reed.

SLS is represented by Marcos Daniel Sasso of Ballard Spahr LLP.

The case is Eric Mitchell v. Specialized Loan Servicing LLC, case number 2:20-cv-10455, in the U.S. District Court for the Western District of California.

--Editing by Aaron Pelc.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

Eric T. Mitchell v. Specialized Loan Servicing LLC et al


Case Number

2:20-cv-10455

Court

California Central

Nature of Suit

Consumer Credit

Judge

Stanley Blumenfeld, Jr

Date Filed

November 16, 2020

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