Foreclosure exists, practically, to force a debtor to pay (or lose the property being foreclosed on). But technically, it isn’t a “collection action” so much as the formal termination of possession rights. Thus courts have been divided on whether the FDCPA applies to it.
Foreclosure and the Fair Debt Collection Practices Act
The Fair Debt Collection Practices Act was designed to control debt collectors in the process of debt collection.
Foreclosures exist in order to force the debtor, one way or another, to pay a debt, and in recent years it would be hard to find a more abused area of collection law. The FDCPA should, therefore, apply to it. Not all courts agree. The essay below is, perhaps unfortunately, designed to address this issue in depth and detail. Thus it will require some effort to read. There are videos at the bottom of the page about Foreclosure as a procedure for debt collection and about what jurisdiction is and how it applies in this situation.
Finally, I wrote the essay prior to the Supreme Court’s rulings in 2018 that reveal the Court’s desire to restrict or destroy the FDCPA. Given the tenor of those rulings, one can’t be confident that the courts will apply the FDCPA as they should. But those decisions don’t actually directly apply to this question.
Applying the FDCPA to Foreclosure Actions
The Fair Debt Collection Practices Act (FDCPA) is a law that, primarily, applies to “debt collectors” who are “collecting debts” (as those terms are defined by the statute. Foreclosure and all the actions leading to it are clearly attempts to collect a debt. Whether the FDCPA will be applied to them, on the other hand, is not so clear. Currently, it appears that a majority of the district courts that have ruled on the question have found that the FDCPA does not apply. Most of the circuit courts of appeal addressing the question, on the other hand, have held that it does. Eventually the law will probably catch up with common sense and the broad remedial purpose of the FDCPA, but for now whether the Act will apply to foreclosure may depend on where you live – and what court you file your suit in.
In this essay we will first discuss the arguments in favor of applying the FDCPA to foreclosure, then the arguments against it, and finally will compare the relative merits of the arguments. The good news for anyone seeking to apply the FDCPA to foreclosure is that even the jurisdictions that have held it does not apply have exceptions that open the door to a considerable extent. In whatever jurisdiction you use, you will need to know all the arguments.
[Video on what foreclosure is and how it works is at the bottom of this page.]
Applying the FDCPA to Foreclosure
The arguments in support of applying the FDCPA to foreclosure are both numerous and intuitive. The legal purpose of foreclosure is to collect a debt, whether the process requires the filing of a lawsuit and judgment (judicial) or is simply a formal process that does not require a judgment (non-judicial). Foreclosure is designed to allow for the original owner to take the property, sell it, and use the money to pay off a debt. The foreclosure process has often been abused and in ways similar to other debt collection techniques; nothing in the Act itself exempts foreclosure; and several parts of the Act strongly suggest that foreclosure was intended to be included.
The arguments against including foreclosure, by contrast, are superficial and counterintuitive, relying on hornbook rules of statutory construction like “the expression of one concept implies the exclusion of the unexpressed” or reading a statute in a way which avoids “surplussage.” On the other hand, some courts rely on the fiction that the holder of the security interest is somehow the “true” owner of the property in question and that it is somehow unjust to allow the debtor to continue to possess the property. Thus the foreclosing entity is merely “taking back” what is truly its property and need not obtain a judgment in order to do so, a notion based on the mistaken assumption that all foreclosable liens are purchase money mortgages.
[Video on Foreclosure and Jurisdiction at bottom of page]
Arguments in Favor of Applying the FDCPA to Foreclosure
The strongest arguments in support of applying the FDCPA to foreclosure are in one of the most recent cases, Glazer v. Chase Home Finance, LLC, __ F.3d __, 2013 WL 141699 (6th Cir. Jan. 14, 2013). This case draws significant support from important cases in two other circuits of the federal appeals courts, Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006) and Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3d Cir. 2005).
As the court in Glazer points out, with all matters requiring statutory interpretation analysis begins with the text of the statute. United States v. Ron Pair Enters, Inc., 489 U.S. 235, 241 (1989). Unfortunately, the FDCPA does not define “debt collection,” and its definition of “debt collector” adds little, as it speaks in terms of debt collection.
But the statute does offer “guideposts.” It defines the word “debt” as “any obligation of a consumer to pay money arising out of a transaction in which the … [money or credit is spent]… primarily for personal, family, or household purposes.” 15 U.S.C. Sec. 1692a(5). As Glazer points out, this language suggests that coverage depends on the purpose of the debt, rather than whether the debt is secured, citing, Haddad v. Alexander, Zelanski, Danner & Fioritto, PLLC, 698 F.3d 290, 293 (6th Cir. 2012) (applying FDCPA to condo assessments). Accordingly, home loans are debts even if secured, Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1216-17 (11th Cir. 2012); Maynard v. Cannon, 401 F.App’x 389, 394 (10th Cir. 2010).
The Act’s substantive provisions indicate that debt collection is performed through either a “communication” (Sec. 1692c), “conduct,” (1692d) or “means,” (1692e, 1692f). These broad words suggest a broad view of what the Act considers collection. Nothing in these provisions limits applicability to collection actions not legal in nature. Foreclosure’s legal nature, therefore, does not prevent it from being debt collection.
Glazer referred to Black’s Law Dictionary, which the Supreme Court relied on in Heintz, 514 U.S. at 294: “In ordinary English, a lawyer who regularly tries to obtain payment of consumer debts through legal proceedings is a lawyer who regularly ‘attempts’ to ‘collect’ those consumer debts.”
Thus, if a purpose of an activity taken in relation to a debt is to “obtain payment” of the debt, the activity is properly considered debt collection. See Shapiro & Meinhold v. Zartman, 823 P.2d 120, 124 (Colo. 1992)(foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt).
In fact, 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 to pay for the outstanding debt). Glazer v. Chase, at p. 11. The existence of redemption rights and the potential for deficiency judgments demonstrate that the underlying purpose of foreclosure is to obtain payment of a debt, Glazer, id., citing Eric M. Marshall, Note, The Protective Scope of the Fair Debt Collection Practices Act: Providing Mortgagors the Protection They Deserve from Abusive Foreclosure Practices, 94 Minn.L.Rev. 1269, 1297-98 (2010) and not, more esoterically, to repossess (or become possessed of) the security.
No provision of the Act excludes forclosure or the enforcement of security interests from its reach, generally, and some affirmatively suggest that such activity is debt collection. Section 1692f prohibits debt collectors from using unfair or unconscionable means “to collect any debt,” and the non-exhaustive list of specific activities applied to that includes “taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest.” 15 U.S.C. Sec. 1692f(6)(A). As Glazer points out, the example’s presence within a provision that prohibits unfair means to “collect or attempt to collect any debt” suggests that mortgage foreclosure is a “means” to collect a debt. Glazer, p. 11.
And Section 1692i requires a debt collector bringing a legal action “to enforce an interest in real property securing the consumer’s obligation” to file in the judicial district where the property is located. 15 U.S.C. Sec. 1692i(a)(1). This provision applies only to “debt collectors” as defined in the first sentence of the definition 1692a(6). This suggests that filing any type of mortgage foreclosure action is debt collection.
Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3rd Cir. 2005)
Piper v. Portnoff was a case involving utility bills. The defendant lawyers made numerous demands on outstanding utility bills without adhering to the FDCPA. When the plaintiff did not pay the bills, the firm obtained a lien on the plaintiff’s home. Then the lawyers sought to foreclose on the lien. The defendants attempted to argue that the FDCPA did not apply because they had only sought to foreclose on a security, and the Third Circuit rejected this argument.
The Piper case did involve numerous pre-foreclosure notices and threatening letters involving a simple bill before the bill was converted to a lien, so the court was probably influenced by the fact that the lien’s purpose in this case was simply a step in the collection process which foreshadowed – in very short order – the foreclosure of the lien to collect the debt. The sequence of events highlighted the absence of what might be considered a “normal” part of mortgages which the courts applying an “unjust enrichment” theory accept as given, i.e., that the lien was part of the means by which the plaintiffs had purchased the house. The sequence of events in Piper demonstrates that not all property liens arise in a way which suggests that the lender truly “owns” the property rather than the debtor, and negated the unjust enrichment aspect of the argument in favor of permitting foreclosure as not the “collection of a debt.”
In reality, as Glazer points out, nothing is clearer than that mortgage foreclosure is all about collecting a debt. Its purpose is very simply to obtain money to pay a debt, and any overage is due back to the debtor. The holding of Piper was that a debt’s conversion to a lien did not alter its character as a debt. Nothing in the FDCPA suggests a different rule for cases involving purchase-money security vs. security interests that arise in other ways as it did in Piper. An even more powerful case relating to this is Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998).
Romea v. Heiberger & Associates, 163 F.3d 111 (2d Cir. 1998)
Romea was a case involving eviction for failure to pay rent. In this case, the plaintiffs had fallen behind in rent due, and the defendant sent them a “three-day notice” as required byNew Yorklaw as a prerequisite of eviction. The notice did not contain the required FDCPA mini-miranda warning or right to demand verification, and the plaintiffs filed suit under the FDCPA.
The defendant argued that since the three-day notice was a statutory prerequisite for repossession of the property for nonpayment of rent, it was not a “communication” in an attempt to collect a debt. Noting that the defendant “made no attempt to deny that its aim in sending the letter was at least in part to induce Romea to pay the back rent she allegedly owed,” the court held that the fact that the letter was a statutory prerequisite to eviction was “wholly irrelevant to the requirements and applicability of the FDCPA.” The notice was an attempt to collect a debt that had to comply with the FDCPA’s requirements.
The Romea court also rejected the argument that because the 3-day notice was a statutory prerequisite to eviction it was a pleading. In the first place, the required notice was not a pleading at all under New York law, but merely a notice to the tenant of what must be done to forestall a summary proceeding. More significantly, however, the 2nd Circuit construed the 15 U.S.C. Sec. 1692a(6)(D) exemption to apply “only to process servers, and not to those who prepared the communication that was served on the consumer.”
Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006)
In Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006), a bank hired a law firm to foreclose on a house because the home loan was in default. The firm commenced foreclosure proceedings and contacted the plaintiff to say her home would soon be sold at auction. The plaintiff filed suit under the FDCPA.
The defendant argued that the plaintiff’s debt ceased to be a debt for purposes of the Act once foreclosure proceedings began, and that foreclosure was distinct from the enforcement of an obligation to pay money. The Fourth Circuit rejected the argument, holding that the debt remained a “debt” and that the firm’s actions surrounding the foreclosure proceeding were attempts to collect that debt. Id., 443 at 376. The court noted specifically that “the firm’s argument, if accepted, would create an enormous loophole in the Act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt.” Id. Seeing “no reason to make an exception to the Act when the debt collector uses foreclosure instead of other methods,” the court held that the firm’s “foreclosure action was an attempt to collect a debt.” Id. at 376, 378.
Cases Against Applying the FDCPA to Foreclosures
The cases opposing application of the FDCPA to foreclosure are much more cursory in their analysis. Some hold that foreclosure is distinct from the debt collection process because “payment of funds is not the object of the foreclosure action.” Hulse v. Ocwen Fed Bank, 195 F.Supp. 2d 1188, 1204 (D. Or. 2002). The court in Glazer flatly rejects this argument for the reasons stated above, holding that “there can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.”
Gray v. Four Oak Court Ass’n, Inc. 580 F.Supp.2d 883 (D.Minn. 2008)
In Gray v. Four Oak Court Ass’n, Inc., 580 F.Supp.2d 883 (D.Minn. 2008) the court rejects application of the FDCPA to foreclosure based on the supposed definition of “debt collector.” According to the Gray court, “the statute’s definition of a ‘debt collector’ clearly reflects Congress’s intent to distinguish between the ‘collection of any debts’ and ‘the enforcement of security interests.’”
This is so, according to Gray, because the first sentence of the definition in Sec. 1692a(6) defines a debt collector as “an person who uses any instrumentality of interstate commerce or the mails [for] the collection of any debts… The third sentence of Sec. 1692a(6) provides that for purposes of Sec. 1692f(6) a debt collector is also “any person who uses any instrumentality of interstate commerce…[for] the enforcement of security interests.” Therefore, if a party satisfies the first sentence, it is a debt collector for all purposes, but if the party only satisfies the third sentence it is only a debt collector for purposes of 1692f(6). “If the enforcement of a security interest was synonymous with debt collection, the third sentence would be surplussage because any business with a principal purpose of enforcing security interests would also have the principal purpose of collecting debts.” Id., 580 F.Supp.2d 883, 888. (emphasis added). Thus the court held that the enforcement of a security interest, including a lien foreclosure, does not constitute the “collection of any debt.”
Although there is a superficial appeal to the Gray court’s reasoning, it is untenable. It simply ignores the fact that foreclosure is inevitably intended as a means to collect a debt and builds a huge loophole into the Act which would frustrate the legislative intent. There is no basis in Gray for distinguishing the situations that arose in Piper, where the debt was converted to a security interest – a process which happens, incidentally, under Missouri law where a judgment in civil court becomes a lien on real property.
Again, the Glazer court flatly rejects the argument, citing Piper. The third sentence of the definition does not except from the definition of debt collection the enforcement of security interests; it simply “makes clear that some persons who would be without the scope of the general definition are to be included where Sec. 1692f(6) is concerned:”
[e]ven though a person whose business does not primarily involve the collection of debts would not be a debt collector for purposes of the Act generally, if his principal business is the enforcement of security interests he must comply with the provisions of the Act dealing with non-judicial repossession abuses. Section 1692a(6) thus recognizes that there are people who engage in the business of repossessing property whose business does not primarily involve communicating with debtors in an effort to secure payment of debts.
Piper, 396 F.3d at 236. And, in the words of the Fourth Circuit, “[t]his provision applies to those whose only role in the debt collection process is the enforcement of a security interest.” Wilson, 443 F.3d at 378.
This reasoning may seem a little strained, but a contrary reading excludes a large category of debt collectors for no principled reason at all in a way which inevitably would, and widely has, led to abuses that frustrate the purposes of the Act. And there is a group that satisfies this definition: repossession agencies and their agents, “who typically ‘enforce’ a security interest – i.e., repossess or disable property – when the debtor is not present, in order to keep the peace. See, Glazer v. Chase Home Fin. Slip. Op. at 15, citing cases applying the definition’s third sentence to repossession agencies: Montgomery v. Huntington Bank, 346 F.3d 693, 700 (6th Cir. 2003), Nadalin v. Auto Recovery Bureau, Inc., 169 F.3d 1084, 1085 (7th Cir. 1999), James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995)(noting that “a few provisions of the Act subject repossession companies to potential liability when they act in the enforcement of others’ security interests”).
Seventh and Eleventh Circuit Interpretations
The Seventh Circuit has not ruled whether foreclosure is per se debt collection, but in a non-foreclosure case took a “pragmatic” approach. In Gburek v. Litton Loan Servicing, LP, 614 F.3d 380, 386 (7th Cir. 2010, the court looked at a number of communications sent by the debt collector to the consumer. The letters threatened foreclosure and also offered to discuss “foreclosure alternatives,” and the court held that this was a communication related to debt collection.
Since most communications related to foreclosure contain information about foreclosure alternatives, whether by statutory requirement or not, it seems likely that most of them will be communications relating to debt collection. A truly pragmatic view of them would go the further step of recognizing that foreclosure is itself a form of debt collection.
The Eleventh Circuit has officially held that non-judicial foreclosure was not debt collection under the Act. In Warren v. Countrywide Home Loans, Inc., No. 08-16171 (11th Cir. 2009)(unpublished), the court perfunctorily recited the majority of district courts finding foreclosure not a debt collection and held the same way. The court did not intend for the opinion to be published, however, so it has little controlling force, if any, and was not even cited by Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211 (11th Cir. 2012), which cited Wilson, Piper, Romea and Gburek with approval and holding that “A communication related to debt collection does not become unrelated to debt collection simply because it also relates to the enforcement of a security interest. A debt is still a “debt” even if it is secured.”
Reese involved a foreclosure notice required by Georgia law as part of its non-judicial foreclosure process which also contained various statements demanding money and advising that attorney’s fees would be added to the “amount sought.” The Reese court regarded these statements as attempts to collect which converted the foreclosure into a debt collection effort. Or to put it as the Reese court did, the fact that the documents also constituted a foreclosure did not immunize their communications, clearly within the FDCPA, from the Act.
The majority of circuit courts have held that foreclosure is an attempt to collect a debt, and those that have not have adopted an approach that will, in the majority of cases, lead to a similar result. It is very likely that eventually all the courts will reach this common sense application of the FDCPA.
 A frequent justification for the special treatment of security interests is that, unlike the payment of general debts where a debtor is unable to pay, where there is a security interest made as part of the payment, it could be said that the debtor does not really own the house and would be unjustly enriched by being permitted to keep it without paying. As Piper shows, however, this is an extremely slippery slope.