Sixth Circuit Holds That Mortgage Foreclosure And Foreclosure Lawyers Are Subject To The FDCPA

Overview

The U.S. Court of Appeals for the Sixth Circuit recently held that mortgage foreclosure actions are "debt collection" under the Fair Debt Collection Practices Act (FDCPA). Glazer v. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013). In Glazer, the Sixth Circuit also held that lawyers who meet the general definition of debt collector under the FDCPA must comply with its provisions when engaged in mortgage foreclosure activities. And a lawyer whose principal business purpose is mortgage foreclosure or who "regularly" performs this function meets this definition.

In Glazer, a property owner sued its mortgage servicer and the law firm it hired to foreclose on property he had inherited, alleging violations of the FDCPA and Ohio law. The complaint alleged that the servicer, its employees, and its law firm violated the FDCPA by falsely stating that the servicer owned the note and mortgage, improperly scheduling the foreclosure sale, and refusing to verify the debt upon request. The trial court granted summary judgment for defendants on the federal claims, reasoning that a mortgage foreclosure is the enforcement of a security interest, not a debt collection, and as such is not subject to the FDCPA.

Sixth Circuit's Ruling

On appeal, the Sixth Circuit reversed the district court's ruling that a law firm was not "a debt collector." Relying primarily on decisions of its sister circuits 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), the court concluded that "every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt," and, therefore, every mortgage foreclosure is a debt collection subject to the FDCPA. The court determined that was equally so even when the foreclosure was "not seeking a money judgment on the unpaid debt."

In reaching its decision, the Sixth Circuit rejected the view of the majority of district courts, including the one in this case, that mortgage foreclosures generally are not debt collection under the FDCPA because they are enforcements of a security instrument, not attempts to collect money.

The FDCPA itself distinguishes between debt collectors and security enforcers. The FDCPA defines "debt collector" as one whose "principal business" is debt collection or "who regularly collects or attempts to collect" consumer debts. Section 1692(f)(6)...