In 2005, Afsheen and Fabiola Alborzian (“Alborzians”) obtained two loans to purchase a residential property. The first lienholder was Wells Fargo and the second lienholder was JPMorgan Chase Bank (“Chase”). Eventually, after the Alborzians defaulted on their loans, Well Fargo foreclosed. A year after the foreclosure, Chase sent a letter to the Alborzians attempting to collect on the second loan. In the letter, Chase stated that $67,000 was owed, that Chase would be willing to accept a payment of $16,000 to resolve the outstanding balance if it was paid within a short deadline. If there was no resolution, Chase stated that the Alborzians would have “fewer options”. Finally, Chase included a sentence stating that it was not “an attempt to collect a debt or to impose personal liability … [t]o the extent [plaintiffs’] obligation was discharged.” In addition to the call, Chase called the Alborzians to attempt to collect on the loan.
In response, the Alborzians sued Chase for violations of the debt collection acts. They argued that because the second loan was a purchase money loan that was wiped out by the senior loan, the anti-deficiency statute prevented any further liability. Without any personal liability, Chase’s attempts to collect were deceptive. After several motions, the trial court eventually ruled against the Alborzians and granted Chase’s demurrer by finding that the Alborzians failed to state a claim.
The Second Appellate District overturned the trial court’s decision and found that Chase could be liable under the debt collection acts. In Afshee Alborzian v. JPMorgan Chase Bank, N.A., the appellate court held that Chase’s statements were deceptive and could have reasonably misled the Alborzians to believe that they were personally liable. The Court noted that the standard regarding collection cases is the “least sophisticated debtor.” Here, although Chase included a sentence stating they were not attempting to collect a debt if the debt was unenforceable, the remainder of the letter was clearly intended to persuade the debtor to believe a debt was owed and enforceable. As the law presumes that the consumer is “below average sophistication or intelligence”, it is reasonable to assume that the consumer would not be aware that California’s anti-deficiency statutes barred any further liability. Due to the fact that there could have been some deception or misrepresentation, the appellate court allowed the Alborzians to attempt to prove their case at the trial court level.
WHY THIS DECISION IS IMPORTANT:
Many debt collectors have attempted to avoid liability by including a phrase that the borrower should seek counsel to determine whether they actually owed a debt. However, the court here has found that this language is insufficient as the majority of the letter is still misleading. With this ruling, many debt collectors will need to perform their due diligence to determine whether a debt is enforceable before attempting to collect a debt. Further, while previous case law had allowed debt collectors to attempt to persuade borrowers to voluntarily make payment on unenforceable debt, the potential liability may prevent debt collectors from even making the first contact.
In ruling on this case, the Court honed in on the crux of the problem – Chase, and other debt collectors, are impermissibly misleading consumers about the debt they owed. While debt collectors have attempted to avoid liability by writing in fine print, this language is simply insufficient as the entire point of the communication is to make borrowers believe they still owe money. The Court noted that Chase could have prevented this issue by stating that it was “merely seeking voluntary repayment of its unenforceable debt.” Obviously, as the court continues to state, this would severely undermine the likelihood of any consumer making a payment to Chase. With this ruling, it seems unlikely to be worth the cost and potential liability to attempt to collect on these debts.