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Mortgage Foreclosure is “Debt Collection” Under the FDCPA

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Scott A. Chernich & Patricia Scott
Banking, Finance & Real Estate E-News
April 15, 2013

The foreclosure of a mortgage is “debt collection” under the Fair Debt Collection Practices Act (“FDCPA”) according to the Sixth Circuit Federal Court of Appeals in Glazer v Chase Home Finance, LLC.

Glazer brought a lawsuit against Chase and its attorneys for various violations of the FDCPA. The Sixth Circuit determined that Chase was not a “debt collector” under the FDCPA because it began to collect the debt prior to the default and a debt collector does not include a person attempting to collect a debt that was not in default at the time the debt was obtained. Therefore, the opinion addresses the FDCPA violations as alleged against Chase’s attorneys. 

The issue before the Court was whether a mortgage foreclosure constitutes “debt collection” under the FDCPA. The Court noted that the FDCPA does not define “debt collection.” The Court reasoned that although it seems fairly straightforward, there had been a great deal of confusion in regard to whether a mortgage foreclosure is a “debt collection” under the FDCPA.

Because the term “debt collection” is not defined by the FDCPA, the Sixth Circuit looked to other defined terms in the Act for enlightenment. The Court noted that “debt” is defined as an obligation of a consumer to pay money arising out of a transaction in which the money or property are primarily for personal, family or household purposes. As a result, the Court found that a home loan constitutes a “debt.” 

According to the Court:

  1. Under the FDCPA “debt collection” can be performed through either “communication,” “conduct,” or “means;” 
  2. The use of such broad words as “communication,” “conduct,” and “means” suggests that a liberal view of the Act should be considered in relation to collection; 
  3. If the purpose of an activity is to obtain payment of the debt, the activity is properly considered “debt collection;” 
  4. There is nothing in the FDCPA that prevents a mortgage foreclosure from being  “debt collection” under the Act;
  5. Foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy the debt;
  6. Every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment, either by persuasion or by compulsion; and
  7. The existence of redemption rights and the potential for a deficiency judgment show that the purpose of foreclosure is to obtain payment of the underlying home loan, and such remedies can only exist where the foreclosure is taken for the purpose of obtaining payment.

Accordingly, the Court held that mortgage foreclosure is “debt collection” under the FDCPA.

Lawyers such as Chase lawyers who meet the definition of “debt collector” must comply with the FDCPA when engaging in mortgage foreclosures, and any lawyer will satisfy the definition of a “debt collector” if his principal business purpose is mortgage foreclosures or if he “regularly performs this function.” Chase lawyers, therefore, were in violation of the Act.