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.
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.)
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.)
Historically, courts have been 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, 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.
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, 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.)
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:
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.
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.)
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.