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Obduskey v. McCarthy & Holthus LLP Supreme Court Decision a Win for the Industry

Posted By USFN, Wednesday, March 27, 2019

by Richard P. Haber, Esq.

McCalla Raymer Leibert Pierce, LLC

USFN Member (AL, CA, CT, FL, GA, IL, MS, NV, NJ, NY)

In a great win for the industry, the United States Supreme Court decided last week that default firms and trustees specializing in nonjudicial foreclosures are not “debt collectors” and therefore not subject to the majority of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq., (the “FDCPA” or the “Act”). In a unanimous decision issued on March 20, 2019 in the matter of Obduskey v. McCarthy & Holthus LLP, the Court considered whether the actions taken by McCarthy & Holthus LLP (“McCarthy”) in connection with a nonjudicial foreclosure in the State of Colorado rendered it a “debt collector” pursuant to the Act.

The question arose from the FDCPA’s statutory definition of “debt collector” which, in relevant part, is:

[A]ny person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, either directly or indirectly, debts owed or due or asserted to be owed or due another.

*             *             *

For the purpose of section 1692f(6) of this title, such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests.

15 U.S.C. § 1692a(6).

The Court has characterized the first section as the “primary definition” and the second section as the “limited-purpose definition.” A party included in the primary definition is subject to the full extent of the FDCPA, including its main requirements that a debt validation notice be sent by the debt collector; that, upon receiving a consumer dispute as to the validity or amount of a debt, the debt collector cease collection activity until it verifies the debt; and the prohibition on making false, deceptive or misleading representations in connection with a debt, such as misstating a debt’s “character, amount, or legal status.”

However, a party subject only to the limited-purpose definition is merely subject to the FDCPA’s requirement that it not “tak[e] or threaten[ ] to take any nonjudicial action to effect dispossession or disablement of property if: (A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from dispossession or disablement.” 15 U.S.C. § 1692f(6).

Relying on (1) the Act’s text itself; (2) a determination that Congress wanted “to avoid conflicts with state nonjudicial foreclosure schemes”; and (3) the legislative history of the FDCPA, the Court concluded that McCarthy is only subject to the limited-purpose definition of “debt collector” and not the primary definition. Accordingly, default firms and trustees who specialize in nonjudicial foreclosures are no longer subject to the vast majority of FDCPA requirements. 

While the Court made sure “not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls,” default firms and trustee companies whose primary business is the pursuit of nonjudicial foreclosures, can now rest a little easier from the standpoint of compliance and litigation risk in connection with the FDCPA. With respect to judicial foreclosures, the Court specifically stated “whether those who judicially enforce mortgages fall within the scope of the primary definition is a question we can leave for another day,” but it seems that there would be a strong argument that the holding in Obduskey extends to firms specializing in judicial foreclosures that result only in in rem judgments, without an in personam deficiency component.

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