Fair Debt Collection Claims in Foreclosure Cases

The Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §§ 1692 and following) is a federal law that protects consumers from abusive collection practices by debt collectors.

The purpose of the FDCPA is to:

• eliminate abusive debt collection practices
• establish guidelines under which debt collectors may conduct business, and
• provide consumers with the means to dispute and validate the accuracy of a debt.

The FDCPA is usually used to fight the abusive tactics of aggressive debt collection agencies. But homeowners in foreclosure sometimes bring FDCPA claims to fight the action.

What Is a "Debt Collector" Under the FDCPA?

Generally, a "debt collector" under the FDCPA is someone who regularly collects debts owed to others, including collection agencies and attorneys who collect debts regularly (see Heintz v. Jenkins, 115 S.Ct. 1489 (1995)), or whose main business is collecting debts, including debt buyers, in some instances.

So, the term "debt collector" generally includes debt collection agencies, collection attorneys, and debt buyers. The FDCPA applies to mortgage servicers only if they obtained the loan servicing rights after the borrower was in default. So, a loan servicer that gets the servicing rights on a debt before the borrower's default isn't covered by the FDCPA. (15 U.S.C. § 1692a(1)(F)).

Usually, though, original creditors are excluded.

What Actions Are Illegal Under the FDCPA?

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.

Court Split On Whether the FDCPA Applies to Foreclosures

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

Courts That Apply the FDCPA to Foreclosures

Courts in some jurisdictions 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, courts sometimes view judicial foreclosures as subject to the FDCPA because creditors can generally get deficiency judgments (money) in addition to foreclosing the security interest.

Courts That Have Said the FDCPA Does Not Apply to Foreclosures

Other courts have found that the FDCPA doesn't cover foreclosure activity. 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​, No. 17-1307 (March 20, 2019)). Concerning judicial foreclosures, the Court said, "whether those who judicially enforce mortgages fall within the scope of the primary definition [of a debt collector] is a question we can leave for another day." But based on the holding in this case, there's a strong argument that the FDCPA wouldn't apply to firms handling judicial foreclosures that result in only in rem judgments (judgments against the property) without an in personam deficiency judgment.

Following this line of reasoning, on June 20, 2020, the U.S. Court of Appeals for the Ninth Circuit in Barnes v. Routh Crabtree Olson, P.C. held that a judicial foreclosure proceeding is not a form of debt collection when the proceeding doesn't include a request for a deficiency judgment.

Required Notice When the FDCPA Applies

If the FDCPA is applicable, the foreclosing party must comply with the law's notice requirements and restrictions. 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 any amounts not permitted under the mortgage contract or applicable law are 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.

Remedies for FDCPA Violations

In the case of any FDCPA violation, the consumer may recover:

• actual damages
• statutory damages up to $1,000, and
• attorneys' fees and costs.

Some States Have Debt Collection Practices Laws

Additionally, many states have debt collection practices statutes with a broader scope than the FDCPA.

Talk to a Lawyer

Talk to a lawyer to find out if the FDCPA applies to your foreclosure. Also, remember that any given foreclosure or legal situation has many potential claims and defenses. If you think you've been the victim of an 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 on what to do in your particular situation.