Foreclosure Alone Not Debt Collection Under FDCPA, Appeals Court Rules

When foreclosing on a house, whether a lender attempts to recover the unpaid balance on a mortgage or just recover the property determines whether the Fair Debt Collection Practices Act applies, according to a ruling issued yesterday by the Ninth Circuit Court of Appeals. As long as the lender is only recovering the property, the FDCPA can not be applied, the court ruled in affirming a lower court’s dismissal of the suit.

A copy of the ruling in the case of Barnes v. Routh Crabtree Olsen PC et al can be accessed by clicking here.

The plaintiff filed suit after Fannie Mae attempted to foreclose on his house. The plaintiff alleged Fannie Mae violated the FDCPA by pursuing a judicial foreclosure without lawful authority and neglecting to make required disclosures. The defendant filed a motion to dismiss, which a District Court judge granted, ruling that the defendants had not violated the FDCPA because a judicial foreclosure is not debt collection.

Looking at the statutory definition of a debt collector, the Appeals Court determined that enforcing a security interest — foreclosing on a property — does not meet the definition under the FDCPA.

“In addition, this statutory definition provides that the term ‘debt collector’ ‘includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests,’ § 1692a(6), but only for purposes of the prohibition on ‘[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property’ absent lawful authority and a present intention to take possession, § 1692f(6),” the Appeals Court wrote. “This limited-purpose definition, which governs a discrete factual scenario involving the enforcement of a security interest, reinforces that the primary definition of debt collector does not include security-interest enforcement.”

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