Mortgage Foreclosure is Debt Collection; According to Court

A debt collector is generally defined under the Fair Debt Collection Practices Act (“FDCPA”) as a person whose “principle business” is the collection of debts or a person who “regularly collects or attempts to collect” the debts of consumers. Courts have interpreted these definitions to hold that lawyers who handle mortgage foreclosures are only subject to the FDCPA when it comes to unfair practice provisions and are not considered debt collectors for any other reason.

However, the U.S. Court of Appeals for the Sixth Circuit ruled on January 14th, in the case of Glazer v. Chase Home Finance, LLC et al., that when a lawyer handles mortgage foreclosures regularly or a lawyer’s principal business is mortgage foreclosures then they are considered debt collectors under the FDCPA. This decision goes against some previous decisions that have held that mortgage foreclosure is not considered debt collection under the FDCPA because enforcement of security interests are involved.

In this case, a mortgage servicer and the law firm it hired to foreclose on a property were sued by the property owner. The property owner alleged that the mortgage servicer and the law firm violated provisions of the FDCPA and Ohio law. The alleged violations of the FDCPA by the servicer, its employees, and the law firm included stating falsely that the servicer owned the note and mortgage, the foreclosure sale was improperly scheduled, and they refused to verify the debt when the property owner requested it. 

The court ruled that the law firm was a debt collector based on a provision in the FDCPA, section 1692(f)(6), that states that the “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property” is considered an unfair practice. The Sixth Circuit’s decision says that this definition does not exclude enforcement of security interests from debt collection. 

In fact the court decided that this provision should be interpreted to extend the FDCPA’s coverage under the unfair practice provision does not apply only to persons whose only role is the enforcement of security interests, which would include persons such as repossession agencies and their agents. The Sixth Circuit stated that if the activity had the purpose of obtaining payment of a debt then it is considered debt collection. This includes all mortgage foreclosures whether they are judicial or not if they are undertaken to obtain payment for the underlying debt.

Other Circuit Courts have agreed with this view, including the Second, Third Fourth, and Eleventh. The Consumer Financial Protection Bureau (“CFPB”) also agrees with this interpretation. There is concern that law firms may be discouraged from engaging in mortgage foreclosure activity due to worries of FDCPA liability. Banks and other mortgage servicers would then have to move some of their debt collection activities in-house.

If you or a loved one have been subjected to these aggressive tactics by a creditor, please contact us immediately. We have been successfully representing those abused and taken advantage of by debt collectors for years, and have a long list of successful stories to share with you. We offer a FREE CASE REVIEW for you to assess whether we can assist you with your matter. Please do not hesitate to contact us toll free at 1-800-875-3666 if you prefer to talk to a trained professional over the phone instead, or of course, visit our website at http://www.krohnandmoss.com/.