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Sixth Circuit Applies FDCPA to Foreclosure Firms and its Lawyers

Posted By USFN, Monday, March 11, 2013
Updated: Monday, November 30, 2015

March 11, 2013


by Christopher L. Palmer
Wilson & Associates, PLLC – USFN Member (Arkansas, Tennessee)

Just when you think it’s safe to rely on well-reasoned decisions handed down in one federal circuit, another circuit issues an opinion that paints, with broad strokes, an entirely different picture.

Recently, the U.S. Court of Appeals for the Sixth Circuit rendered an opinion that both foreclosure firms and their lawyers, whose principal business purpose is mortgage foreclosure, are “debt collectors” and, therefore, potentially liable under the federal Fair Debt Collection Practices Act. [Glazer v. Chase Home Finance LLC, No. 10-3416, 2013 WL 141699 (6th Cir. Jan. 14, 2013)]. (The Sixth Circuit is comprised of Kentucky, Michigan, Ohio, and Tennessee.)

As set forth in the Glazer opinion, the facts involved a foreclosure action filed in state court in which summary judgment was granted and a decree of foreclosure entered. That ruling was later vacated, and Chase dismissed the foreclosure action without prejudice. Prior to that dismissal, however, the plaintiff filed his suit in federal district court, alleging violations of the FDCPA by both the servicer and the law firm handling the foreclosure.

In many circuits, the generally accepted principle has been that the FDCPA only applies to “debt collectors” as defined by the FDCPA and that, specifically, mortgage foreclosure is not “debt collection.” Therefore, law firms hired to conduct the foreclosure were not considered to be debt collectors or otherwise subject to the Act. This view was based on the premise that foreclosure lawyers and their law firms were tasked with the duty of enforcing a security interest and not conducting traditional debt collection activity. The act of enforcing a security interest does not fit the customary definition of a debt collection practice.

In the Glazer case, the Sixth Circuit could find no clear definition of “debt collection” in the Act and, as a result, focused its attention on what it described as whether “the purpose of an activity taken in relation to a debt is to ‘obtain payment’ of the debt.” The justices opined that the act of foreclosure was a means of collecting a debt because the action taken in the acquisition of the real property was designed with the ultimate goal of collecting money. A sale conducted post-foreclosure would produce money, which would be applied to satisfy a portion of the indebtedness. In other words, the basic activity was in fact debt collection. The justices then went a step further and chose not to distinguish between judicial and nonjudicial foreclosures.

Even if the proceeding is in rem rather than in personam, the lawyers are, according to the Sixth Circuit, debt collectors and, as such, are subject to the FDCPA. More specifically, lawyers engaged in the foreclosure process and charged with the responsibility of communicating and negotiating with debtors, regardless of the nature of the proceeding, are “debt collectors” in the business of collecting debts and are, therefore, subject to the FDCPA.

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