Foreclosure firms are FDCPA ‘debt collectors’

Law firms retained to pursue fore­closure against homeowners are “debt collectors” subject to the federal Fair Debt Collection Practices Act, a fed­eral appeals court ruled in a case in­volving law firm Sam­uel I. White PC from Virginia Beach, Virginia.

In its published 3-0 decision, the 4th U.S. Circuit Court of Appeals rejected a Rockville, Maryland, firm’s argument that foreclosure is not an effort to collect a debt but to pursue the mortgagee’s right to the property after the debt has clearly gone unpaid.

A foreclosure action is in fact an at­tempt to collect a debt, albeit by more extreme means, insofar as the home­owner’s financial obligation remains even as a foreclosure proceeding be­gins, the 4th Circuit said Oct. 7. If the law did not apply to foreclosure pro­ceedings, the law’s goal of protecting debtors from unfair collection practic­es would be thwarted, the court add­ed.

The law 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,” Judge Paul V. Niemeyer wrote for the 4th Circuit. “We see no reason to make an excep­tion to the act when the debt collec­tor used foreclosure instead of other methods.”

The court’s decision revived home­owner Renee L. McCray lawsuit against the White firm and the sub­stitute trustees seeking foreclosure of her property after she allegedly failed to make payments to the mortgage servicer, Wells Fargo. McCray alleges the White firm and trustees violated the FDCPA by failing to provide ade­quate notice and respond to requested information about her debt.

The appeals court said the federal law defines debt collector as one “who regularly collects or attempts to col­lect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Under this definition, debt collectors include firms hired by a creditor seeking foreclosure, the 4th Circuit said.

The 4th Circuit also noted the White firm’s message to McCray about the coming foreclosure action belied its argument that it was not a debt col­lector.

The message not only provided specific loan information, including the lender’s name and the amount required to cure the default, but con­cluded with the following statement, the 4th Circuit said: “This is an at­tempt to collect a debt. This is a com­munication from a debt collector. Any information obtained will be used for that purpose.”

White-firm attorney Robert H. Hillman, who argued the case on be­half of the practice, said he was not surprised by the ruling as the law is fairly clear that firms pursuing fore­closure are “debt collectors.” He add­ed that the White firm is prepared to defend its actions as in keeping with the FDCPA.

McCray’s appellate attorney, Ken­zie M. Rakes of Raleigh, agreed that the court’s decision followed ex­isting law and “clarified when a per­son does or does not qualify as a debt collector.”

The 4th Circuit decision is McCray v. Samuel I. White PC.