Alert July 10, 2012

Sixth Circuit Holds that Premature Foreclosure Filing May Be FDCPA Violation

The United States Court of Appeals for the Sixth Circuit has issued an opinion interpreting the federal Fair Debt Collection Practices Act to reach the conduct of a law firm that sent a notice of foreclosure to a defaulted borrower prior to execution of an assignment that actually transferred the borrower’s note and mortgage to its client, the foreclosing bank.  The Court reversed a ruling by the district court, dismissing the borrower’s FDCPA claim, holding that because the “clearly false” identification of a creditor’s name may constitute a “false representation…to collect or attempt or attempt to collect any debt” for purposes of stating a claim under the FDCPA, defendant-law firm conceivably violated the law when it named the foreclosing lender as the holder of the note and mortgage before execution of an assignment conveying such interest.

The Sixth Circuit took care to state that its opinion does not reach the merits of the borrower’s claim, but instead is limited to the minimum requirements for pleading a facially adequate claim under the FDCPA for purposes of a Rule 12 motion to dismiss analysis. Lenders and loan servicers should take note of the opinion, however, because it again underscores the importance of complying with state law procedural requirements to ensure a settled foreclosure process, in this case the need to confirm that the foreclosing entity can document its legal interest in the property prior to initiating foreclosure.