Alert January 22, 2013

Sixth Circuit Holds that a Mortgage Foreclosure Is Debt Collection under the FDCPA

The United States Court of Appeals for the Sixth Circuit held that filing a mortgage foreclosure action is “debt collection” within the meaning of the Fair Debt Collection Practices Act and a lawyer in such an action who meets the definition of a “debt collector” must comply with the FDCPA. Plaintiff brought an action against a mortgage servicer and its attorney, alleging defendants violated the FDCPA by “falsely stat[ing] in the foreclosure complaint that [servicer] owned the note and mortgage, improperly schedul[ing] a foreclosure sale, and refus[ing] to verify the debt upon request.” The lower court dismissed plaintiff’s claims by adopting the majority view—that is a mortgage foreclosure is the enforcement of a security interest, not debt collection.

The Court, finding support in Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2005) and Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3d Cir. 2005), determined that “any foreclosure action, even one not seeking a money judgment on the unpaid debt, is debt collection under the [FDCPA].” In making this determination, the Court noted “debt collection” is not defined; however, “debt” is defined with respect to the underlying transaction, not the transaction’s security. The Court also noted that “debt collection” is performed through “communication,” “conduct,” or “means,” suggesting a broad view of what is considered collection. Finally, the Court reasoned “every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction, and applying the proceeds from sale to pay down the outstanding debt).” As a result, the Court reversed the district court’s dismissal of plaintiff’s FDCPA claims against the law firm and remanded the case for further proceedings.