This website uses cookies to store information on your computer. Some of these cookies are used for visitor analysis, others are essential to making our site function properly and improve the user experience. By using this site, you consent to the placement of these cookies. Click Accept to consent and dismiss this message or Deny to leave this website. Read our Privacy Statement for more.
Home   |   Contact Us   |   Sign In   |   Register
Article Library
Blog Home All Blogs
Search all posts for:   


View all (841) posts »

Circuit Split Deepens: Tenth Circuit Opines that Colorado Nonjudicial Foreclosure Activity is Not Debt Collection under the FDCPA

Posted By USFN, Tuesday, February 13, 2018
Updated: Monday, February 12, 2018

February 13, 2018

by Holly Shilliday and Andrew Boylan
McCarthy & Holthus LLP – USFN Member (Washington)

In a published opinion — and adding to the current split among the circuits — the Tenth Circuit Court of Appeals has ruled that the Fair Debt Collection Practices Act (FDCPA), set forth in 15 U.S.C. §§ 1692 – 1692p, does not apply to nonjudicial foreclosure proceedings in the state of Colorado. Obduskey v. Wells Fargo Bank, 2018 U.S. App. Lexis 1275 (10th Cir., Jan. 19, 2018). In a win for the industry, the court ultimately sided with the Bank (and these authors’ law firm McCarthy & Holthus) in ruling that the enforcement of a security interest, by way of a nonjudicial foreclosure proceeding, does not constitute debt collection under the FDCPA.

The borrower in Obduskey defaulted on a loan secured by his personal residence. Beginning in 2009, the Bank initiated several nonjudicial foreclosures, none of which was completed. The Bank retained the Law Firm in 2014 to pursue a nonjudicial foreclosure. The Law Firm sent a debt validation letter to the borrower pursuant to 15 U.S.C. § 1692g, wherein it represented that it was retained to initiate foreclosure, stated that it “may be a debt collector,” and referenced the content under 15 U.S.C. § 1692g, including the amount owed to the current creditor, Wells Fargo. The borrower disputed the validity of the debt and alleged that the Law Firm initiated foreclosure before verifying the debt as required under the FDCPA.

The borrower’s complaint included several claims against the Bank and the Law Firm, including one for violation of the FDCPA. The district court dismissed the claims, with prejudice, upon separate motions filed by the Bank and the Law Firm. Regarding the FDCPA claim, the district court ruled that Wells Fargo was not liable because it began servicing the loan prior to default. The district court further concluded that the Law Firm was not a “debt collector” under the FDCPA because “foreclosure proceedings are not the collection of a debt.” The borrower appealed the trial court’s dismissal order.

After the parties fully briefed the case, the Tenth Circuit asked for supplemental briefing regarding whether the FDCPA applies to nonjudicial foreclosure activity. The Tenth Circuit had previously declined to address this issue due to pleading deficiencies in the complaint. [See Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1239 (10th Cir. 2013); Maynard v. Cannon, 401 F. App’x 389, 395 (10th Cir. 2010).] Despite similar issues with the borrower’s complaint in this case, the court recognized the need for clarity on the issue and agreed to hear the case.

Legal Analysis
The Tenth Circuit affirmed the lower court’s dismissal order. Obduskey at *14. First, since Wells Fargo began servicing the loan before it went into default, the court agreed that the Bank was not a debt collector under 15 U.S.C. § 1692(a)(6)(F). Id. at *4-5. Next, the court examined the circuit split on whether the FDCPA applies to nonjudicial foreclosures. Obduskey at *6. Courts across the country have long been divided on this contentious issue.

The Fourth, Fifth, and Sixth Circuits (as well as the Colorado Supreme Court) have found that nonjudicial foreclosures do constitute debt collection under the FDCPA. [Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006); Kaltenbach v. Richards, 464 F.3d 524 (5th Cir. 2006); Glazer v. Chase Home Fin. LLC, 704 F.3d 453 (6th Cir. 2013); Shapiro & Meinhold v. Zartman, 823 P.2d 120 (Colo. 1992) (en banc).]

The Ninth Circuit reached the opposite conclusion in Ho v. ReconTrust Co., 858 F.3d 568 (9th Cir. 2016). The Ho case was closely watched, highly publicized, and saw amicus briefs from both sides of the industry (including the CFPB). Ultimately, the Ninth Circuit found that nonjudicial foreclosures do not qualify as debt collection under the federal act. In Ho, the appellate court affirmed a leading district court case in its jurisdiction, which held that “foreclosing on a trust deed is an entirely different path” than “collecting funds from a debtor.” [Hulse v. Ocwen Federal Bank, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002)]. The Ninth Circuit further reasoned, in Ho, that “Following a trustee’s sale, the trustee collects money from the home’s purchaser, not from the original borrower. Because the money collected from a trustee’s sale is not money owed by a consumer, it isn’t ‘debt’ as defined by the FDCPA.”

Relying on Ho and the plain language of the statute, the Tenth Circuit concluded that the FDCPA applies to the collection of debt (i.e., money) and not to the enforcement of a security interest. Obduskey at *7-8. A nonjudicial foreclosure is the enforcement of a security interest and is not an attempt to collect money from a debtor. Id., citing Ho at 572 (quoting 15 U.S.C. § 1692a(5)).

The Tenth Circuit’s ruling hinged on the “critical differences” between nonjudicial and judicial foreclosures, including whether a deficiency action is being pursued. Obduskey at *8. Pursuant to Colorado law, a separate lawsuit must be filed in order to obtain a deficiency judgment. Id., citing C.R.S. § 38-38-106(6) (2017) and Bank of America v. Kosovich, 878 P.2d 65, 66 (Colo. App. 1994). The court also agreed with the policy considerations raised by Wells Fargo and the Law Firm, including potential conflicts between state and federal law. Obduskey at * 10-11. To avoid casting too wide of a net, the court did limit its holding to nonjudicial foreclosure proceedings and to the facts of the case at hand, finding that “[the Law Firm] did not demand payment nor use foreclosure as a threat to elicit payment.” Id. at *12-13. “It sent only one letter notifying [the borrower] that it was hired to commence foreclosure proceedings.”

Given the split among the circuits, the issue of the applicability of the FDCPA to nonjudicial foreclosures may be ripe for consideration by the U.S. Supreme Court.

© Copyright 2018 USFN. All rights reserved.
February e-Update

Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


This post has not been tagged.

Share |
Permalink | Comments (0)
Membership Software Powered by YourMembership  ::  Legal