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 foreclosure.
Read on to learn more about the FDCPA and whether the FDCPA can help you if you are a struggling homeowner facing foreclosure.
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 and attorneys who collect debts on a regular basis, and perhaps a debt buyer. (Learn about who's subject to the FDCPA.)
The purpose of the FDCPA is to:
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:
(Learn more about Illegal Debt Collection Practices under the FDCPA.)
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, like a foreclosure trustee, 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.
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, 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.
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. But 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's not required by the state’s governing foreclosure law.
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:
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:
(To learn more about FDCPA lawsuits and possible damages, see Damages and Remedies Available in FDCPA Lawsuits.)
Additionally, many states have debt collection practices statutes that have a broader scope than the FDCPA. (Learn more about State Fair Debt Collection Laws.)
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.