Anyone who has been in this industry for more than a hot minute knows that the Fair Debt Collection Practices Act applies to any debt in which the subject of the transaction is for primarily personal, family, or household purposes. But every now and then a case comes along where the type of debt in question is more of a square peg that can’t be pounded into that round hole of a definition. The Ninth Circuit Court of Appeals was faced with just such a case, and determined that a District Court judge erred in ruling that the FDCPA did not apply to a property that was purchased by the plaintiffs and being rented out, saying that the judge did not look closely enough at whether the transaction was for commercial or consumer purposes.
A copy of the ruling in the case of Glawe v. Carpenter, Hazlewood, Delgado & Bolen can be accessed by clicking here.
The plaintiff and his wife, who lived in Iowa, purchased a home in Arizona. The home was meant to be a retirement home for the pair, but they decided to start renting it out until they were ready to retire and move there. The pair then purchased a second house in the same community and started renting it out as well. The plaintiff filed an affidavit stating it was his intention to rent both houses out until he and his wife were ready to move into one of them.
The plaintiffs were sued by the homeowners association for failing to pay assessments and late fees associated with one of the properties. The plaintiff sued the defendant, alleging the attempts to collect violated the FDCPA. A District Court judge sided with the defendants, ruling that because the property in question was being used as a rental property, the underlying obligation was commercial, not consumer, thus the debt did not meet the definition of “debt” under the FDCPA.
But the Ninth Circuit said that the case is not that cut-and-dried. The obligation in question resulted from the purchase of the property in question. Was the intended purchase of that property commercial or consumer, the Ninth Circuit asked. An obligation for a rental property can still be “primarily consumer in nature,” the Ninth Circuit ruled. The District Court judge must “examine the transaction as a whole, paying particular attention to the purpose for which the credit was extended,” it wrote. It remanded the case back to the District Court to “make a factual determination of the true purpose” of the acquisition of the property.