Court bars personal suits by junior lienholders when foreclosure proceeds are insufficient to repay loan

Alborzian et al. v. JPMorgan Chase Bank, (2d Dist. Ct. of App.), 2015 DJDAR 2950 (March 12, 2015)

In a decision clarifying the rights of borrowers, the 2d District Court of Appeal held that junior lienholders may not sue a borrower personally to recover a loan balance post-foreclosure and borrowers may sue such junior lienholders under certain federal and state fair debt collection statutes if lienholders’ collection efforts imply that a debt is still enforceable.

Appellant former homeowners sued JP Morgan Chase Bank after the bank attempted, nearly a year after the foreclosure sale, to collect the remaining balance on the junior lien, which was not repaid with the foreclosure sale proceeds. The bank sent letters to the appellants implying that they were personally liable for the debt and offering to settle for a smaller amount. Appellants argued the collection efforts were misleading and violated several state and federal statutes including the Fair Debt Collection Practices Act (FDCPA), the Rosenthal Fair Debt Collection Practices Act and California’s Unfair Competition Law.

Despite the fact that respondent’s collection letters included a disclaimer saying the letter did not constitute an attempt to collect a debt or impose personally liability, the court held that the letters were ambiguous and allowed the appellants to allege misrepresentation and deception sufficient to survive demurrer on the FDCPA claim. However, the court held that mortgage borrowers may not sue collectors or lienholders under the Consumer Legal Remedies Act because the statute applies only to debt collection involving “goods and services” and mortgages are money debts.