Federal Court Allows Class Action Over Mortgage Servicer’s Deceptive Language

A North Carolina federal court has allowed a proposed class action, Christel England et al. v. Selene Finance LP, involving allegations of deceptive language in mortgage default notices to proceed.

McCarter & English reports that the court denied the servicer’s motion to dismiss claims under the Fair Debt Collection Practices Act (FDCPA) and corresponding North Carolina statutes.

The plaintiffs contend that the servicer’s use of the phrase “may result in acceleration” in its default notices constitutes a deceptive threat of foreclosure.

The case arises from standard mortgage servicing practices and the language contained in “Notice of Default and Intent to Accelerate” letters. Plaintiffs assert that Selene Finance’s notices violate section 1692e of the FDCPA, which bars threats of action that cannot legally be taken.

Under federal mortgage servicing rules, a foreclosure cannot begin until a borrower’s loan is over 120 days delinquent. The plaintiffs allege that by suggesting acceleration could occur earlier, the servicer misrepresented its authority and intent to act.

The district court found these allegations sufficient to survive dismissal, reasoning that a “least-sophisticated consumer” could interpret the notice as a threat to take unlawful action.

The court also found that the equivocal “may accelerate” wording could be deceptive, particularly since the servicer allegedly never accelerates loans before the regulatory 120-day threshold.

Lawyers should note that this ruling signals increased scrutiny of standard mortgage notice templates that mirror Fannie Mae and Freddie Mac’s uniform instruments. Servicers using similar “may accelerate” language could face additional class action exposure unless they review and revise their default communications for FDCPA compliance.