The borrower hadn't seen a statement in 15 years. Then came a $152K bill
A Massachusetts court dismissed claims against mortgage servicers, ruling that debt collection laws don't apply when charging fees during periods when no statements went out.
The January 26 decision in a case against Newrez should ease concerns for servicers dealing with that tricky situation where a borrower gets a bankruptcy discharge but the lien stays on the property.
Here's what happened. Eva Hodges took out a $100,000 home equity line of credit back in 2005. She paid on it for a couple years, then hit financial trouble and filed for Chapter 7 bankruptcy in 2008. The bankruptcy wiped out what she personally owed, but the lien on her Massachusetts home stuck around, meaning the property could still be foreclosed if she didn't pay.
After the bankruptcy discharge in December 2008, the statements stopped coming. Hodges didn't get a single one for the next 15 years. She had already stopped making payments back in October 2007, before she even filed for bankruptcy.
Fast forward to January 2024. Shellpoint Mortgage Servicing, which had been handling the loan since 2013, sent Hodges a notice saying she needed to pay $152,820 to avoid foreclosure. That figure included roughly $100,000 in interest and fees that had piled up since 2008, during all those years when no statements arrived in the mail.
Hodges wasn't happy. She argued that federal law requires lenders to send monthly statements, and if they don't, they can't charge interest and fees for those periods. When Shellpoint tried to collect that money anyway, she said they were making false claims about what she owed, which violates the Fair Debt Collection Practices Act.
She filed a class action lawsuit against Shellpoint and The Bank of New York Mellon, which owns the loan.
But Judge Allison Burroughs wasn't buying it. The court pointed out that while the Truth in Lending Act does require creditors to send periodic statements, servicers aren't creditors under that law. Hodges couldn't point to anyone who actually had a duty to send those statements and didn't.
More importantly, the judge said borrowers can't use the Fair Debt Collection Practices Act to enforce Truth in Lending Act rules against servicers. Congress wrote those laws to apply to different players, and courts aren't going to let you mix and match them.
The court noted that other judges around the country have reached the same conclusion in similar cases, including several involving Shellpoint specifically. One case in Illinois involved nearly identical facts with another borrower who had a Home Equity Line of Credit (HELOC), got a bankruptcy discharge, received no statements for years, then got hit with a bill for accumulated interest.
The ruling doesn't mean Hodges is out of options. The dismissal came without prejudice, giving her three weeks to try again with a complaint that fixes the problems the judge identified. If she doesn't refile by mid-February, the case is over.
For servicers, the takeaway is pretty straightforward. When you're handling loans where someone got a bankruptcy discharge but the lien survived, you're not violating debt collection laws by charging interest and fees that accrued during gaps in statement mailings, at least not simply because the statements didn't go out.
The case shows how post-bankruptcy servicing creates these complicated situations where the usual rules don't quite fit, and courts are still working out where the lines are.
