Fair Debt Collection Claims in Foreclosure Cases

In some states, lenders and creditors bringing foreclosure actions must comply with the FDCPA.

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 sometimes bring FDCPA claims to fight the action.

Read on to learn more about the FDCPA and whether the FDCPA can help you if you're a struggling homeowner facing foreclosure.

Fair Debt Collection Practices Act (FDCPA)

The FDCPA (15 U.S.C. § 1692 and following) 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 and attorneys who collect debts on a regular basis (see Heintz v. Jenkins, 115 S.Ct. 1489 (1995)), and perhaps a debt buyer. (Learn about who's subject to the FDCPA.)

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.

Prohibited Conduct

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
  • contacting a consumer known to be represented by an attorney
  • continuing to try to collect on a debt after the debt collector receives a consumer’s written request to verify the existence and amount of the debt and before providing the verification (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.

(Learn more about Illegal Debt Collection Practices under the FDCPA.)

Courts Split On Whether the FDCPA Applies to Foreclosures

Historically, courts have been split on whether the FDCPA extends to firms engaged to conduct foreclosures.

Courts That Apply the FDCPA to Foreclosures

Some courts have held that an attorney or any other person or entity who pursues foreclosure on behalf of the creditor and who also demands payment or otherwise attempts to collect the debt, like by seeking a deficiency, is a covered debt collector and is subject to the FDCPA.

So, judicial foreclosures are usually viewed by courts as being subject to the FDCPA because creditors are generally able to get deficiency judgments (money) in addition to the security interest through the judicial foreclosure process.

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.

On March 20, 2019, the U.S. Supreme Court unanimously decided that the FDCPA doesn't broadly apply to firms pursuing nonjudicial foreclosures. (See Obduskey v. McCarthy & Holthus, LLP‚Äč, No. 17-1307 (March 20, 2019)). (To learn more about the Obduskey case, read Supreme Court Says Firms Performing Nonjudicial Foreclosures Aren’t Debt Collectors Under the FDCPA.)

Required Notice if FDCPA Applies

If the FDCPA is applicable, the foreclosing party must comply with 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, if the FDCPA applies, 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.

FDCPA Remedies

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

To find out if the FDCPA applies in your foreclosure, talk to a lawyer. Also, keep in mind that any given foreclosure or legal situation has many potential claims and defenses. If you think you've 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 defenses generally, and can advise you what to do in your particular situation.

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