The Fair Debt Collection Practices Act (FDCPA) is usually thought of as a law used to fight the abusive tactics of aggressive debt collection agencies, but homeowners in foreclosure are increasingly bringing FDCPA claims to fight foreclosure.
Read on to learn more about the FDCPA and whether the FDCPA can help you if you are a struggling homeowner facing foreclosure.
Fair Debt Collection Practices Act (FDCPA)
The FDCPA (15 U.S.C. § 1692, et seq.) is a federal law that protects consumers from abusive collection practices by debt collectors. Generally, a debt collector under the statute is someone who regularly collects debts owed to others, including:
- collection agencies
- attorneys who collect debts on a regular basis, and
- companies that purchase delinquent debts and then attempt to collect them.
Learn more about Debt Collectors & Collection Agencies.
Purpose of the FDCPA
The purpose of the FDCPA is to:
- eliminate abusive debt collection practices by debt collectors
- establish guidelines under which debt collectors may conduct business, and
- provide consumers with the means to dispute and validate the accuracy of a debt.
To that end, the FDCPA defines the rights of consumers involved with debt collectors and sets out penalties and remedies for violations of the law.
The FDCPA prohibits certain types of abusive and deceptive conduct when attempting to collect a debt, such as:
- failing to cease communication after receiving written notice that the consumer wishes no further communication or refuses to pay the alleged debt
- contacting a consumer known to be represented by an attorney
- communicating with a consumer after the debt collector receives a consumer’s written request to verify the existence and amount of the debt (the consumer must make the request within a 30-day validation period)
- seeking unjustified amounts, which includes demanding any amounts not authorized by the agreement creating the debt or permitted by law, and
- reporting false information on a consumer’s credit report, including the failure to communicate that a disputed debt is disputed, or threatening to do so in the process of collection.
(Learn more about Illegal Debt Collection Practices under the FDCPA.)
(To learn more about dealing with debt collectors, see our Debt Management & Collection Agencies topic area.)
Courts Are Split On Whether the FDCPA Applies to Foreclosures
From a plain reading of the FDCPA, it is unclear whether or not a law firm or any other person or entity that is hired by the mortgage company or servicer to pursue a foreclosure proceeding meets the definition of a debt collector. As a result, the courts are split on whether the FDCPA extends to firms engaged to conduct foreclosures.
Courts That Apply the FDCPA to Foreclosures
Many courts have held that an attorney or any other person or entity who pursues foreclosure on behalf of the lender and who also demands payment or otherwise attempts to collect the debt (like by seeking a deficiency, collection costs, or amounts to reinstate the loan) is a covered debt collector and is subject to the FDCPA. For example, if the attorney who filed the foreclosure action also demands a specific amount to cure the default or reinstate the loan, then this is considered debt collection and that attorney must comply with the FDCPA.
Courts That Say the FDCPA Does Not Apply to Foreclosures
Other courts have found that foreclosure activity is not covered by the FDCPA. This view is based on the premise that mortgage foreclosure involves the enforcement of security interests, which is not necessarily the same as collecting a debt.
However, even within the jurisdictions that have held that foreclosure attorneys are not engaging in debt collection generally, they could be subject to FDCPA liability if they send any sort of letter or notice that is not required by the state’s governing foreclosure law.
(To learn the ins and outs of the foreclosure process, and foreclosure procedures in your state, visit our Foreclosure Center.)
Required Notice if FDCPA Applies
Law firms or other entities conducting foreclosures in jurisdictions where the FDCPA is applicable must comply with all of the notice requirements and restrictions imposed by the law. This means the firm (if it qualifies as a debt collector) must send a timely letter within five days of its first communication with the debtor containing:
- the amount of the debt
- the name of the creditor to whom the debt is owed
- a statement that unless the consumer, within 30 days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector
- a statement that if the consumer notifies the debt collector in writing within the 30-day period that the debt, or any portion of the debt, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and will a copy of such verification or judgment to the consumer, and
- a statement that, upon the consumer’s written request within the 30-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.
What this means for homeowners facing foreclosure is that you have the right to dispute the debt and ask for a verification of the existence and amount of the outstanding indebtedness. Just be sure to do so within 30 days after receiving the notice. If there are any amounts not permitted under the mortgage contract or applicable law included in the outstanding indebtedness, that’s a violation of the FDCPA. (If they never send you the notice, that's a violation too.)
Also, if you dispute the debt, the debt collector must cease its attempts to collect the debt, or the disputed portion of the debt, until it mails verification of the debt to you.
In the case of any FDCPA violation, the consumer may recover:
- actual damages
- statutory damages up to $1,000, and
- attorneys' fees and costs.
To learn more about FDCPA lawsuits and possible damages, see Damages and Remedies Available in FDCPA Lawsuits.
Some States Have Debt Collection Practices Laws
Additionally, many states have debt collection practices statutes that have a broader scope than the FDCPA.
(Learn more about State Fair Debt Collection Laws.)
When to Hire Counsel
Any given foreclosure or legal situation has many potential claims and defenses. If you think you have been the victim of a FDCPA violation or multiple violations, you should speak to a qualified attorney who is knowledgeable about the FDCPA, as well as foreclosure defense, and can advise you what to do in your particular situation.
For more information on challenging a foreclosure, see our Fighting Foreclosure in Court topic area.