7th Circuit vacates judgment, dismisses HOA debt dispute

The 7th Circuit Court of Appeals has tossed a dispute over unpaid homeowners’ association fees, finding that a letter sent to a couple who owed thousands to their HOA did not cause them any concrete harm.

When Linda and Christopher Gunn fell behind in paying $2,000 owed to their homeowners’ association, the HOA hired the law firm of Thrasher, Buschmann & Voelkel P.C. The firm sent the Gunns a letter demanding payment, which contained a sentenced reading, “If Creditor has recorded a mechanic’s lien, covenants, mortgage, or security agreement, it may seek to foreclose such mechanic’s lien, covenants, mortgage, or security agreement.”

When the Gunns still didn’t pay, the HOA brought the issue to state court, where it sought a remedy for breach of contract rather than foreclosure. The Gunns then filed a federal lawsuit under the Fair Debt Collection Practices Act, part of which forbids false or misleading statements in dunning letters.

Although the Gunns acknowledged the letter’s statement was true both factually and legally, they contended it must be deemed false or misleading because the law firm would have found it too costly to pursue foreclosure to collect a $2,000 debt.

The Indiana Southern District Court dismissed the complaint on the pleadings, ruling that a true statement about the availability of legal options cannot be condemned under the act just because the costs of collection may persuade a law firm to seek one remedy, damages, rather than another, foreclosure.

However, the 7th Circuit noted in its Tuesday opinion that it did not reach the merits in Linda Gunn and Christopher Gunn v. Thrasher, Buschmann & Voelkel, P.C., 19-3514.

“Like the district court’s opinions, neither side’s brief mentions an antecedent question: whether the complaint presents a case or controversy within the scope of Article III. For neither the complaint nor the plaintiffs’ brief explains how the contested sentence injured the Gunns,” Judge Frank Easterbrook wrote Tuesday. “They did not pay anything in response and do not say that the sentence about foreclosure could have reduced their credit rating. And the letter could not have affected their ownership interest. That would require a foreclosure judgment in state court — and, even after such a judgment, owners may retain possession by paying the debt and redeeming their property interests.”

The 7th Circuit panel noted that the Gunns’ reliance on Gadelhak v. AT&T Services, Inc., 950 F.3d 458 (7th Cir. 2020), does not help them, finding that nothing in Gadelhak implies that legally sound language in an otherwise proper letter has ever been deemed a concrete injury.

Additionally, the Gunns argued that Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), and Casillas v. Madison Avenue Associates, Inc., 926 F.3d 329 (7th Cir. 2019), involved procedural rights, while their claim arises under one of the act’s substantive provisions. However, that argument did not show that the Gunns have standing, the panel held.

“Because the Gunns do not contend that the contested sentence in the defendant’s letter caused them any concrete harm, the judgment of the district court is vacated and the case remanded with instructions to dismiss for want of subject-matter jurisdiction,” it concluded.

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