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USFN Briefing Follow-up: Obduskey v. McCarthy Holthus LLP

Posted By USFN, Tuesday, April 16, 2019

by Caren Jacobs Castle, Esq.
The Wolf Firm
USFN Member (CA)

As a follow up to the April 3 USFN Briefing webinar on the U.S. Supreme Court’s decision in the case of Obduskey v. McCarthy Holthus LLP, several questions were submitted that the presenters were unable to address due to time constraints.  Here is insight into two of the more common questions from the webinar.

Does the sending of reinstatement or payoff letters fall within the Obduskey decision, or alternatively does it fall within the Fair Debt Collection Practices Act (“FDCPA”)?

What we do know is Obduskey covers the four corners of each state’s nonjudicial foreclosure process.  As the Court noted …”we here confront only steps required by state law, we need not consider what other conduct (related to, but not required for, enforcement of a security instrument) might transform a security-interest enforcer into a debt collector subject to the main coverage of the Act” (Justice Breyer, Opinion of the Court).

Therefore, to determine if reinstatement or payoff letters constitute actions of a debt collector or a security-interest enforcer, one must look to the four corners of the state statute.  Are the providing of the figures statutorily required, or alternatively, contractually required?  If they are statutorily required Obduskey should control and the sending of the letters should fall outside of the FDCPA.  If, however, the statute does not specifically require the trustee and/or attorney who is conducting the nonjudicial foreclosure to provide reinstatement or payoff letters, then the outcome is no longer clear.  One can anticipate that the next line of litigation post-Obduskey will be surrounding the issues of just what is included within the four corners of the state statute and what is not.

What are examples of violations of the FDCPA in the nonjudicial foreclosure scenario, by way of example, commencing a foreclosure in violation of the automatic stay, commencing a foreclosure on a released security instrument, or commencing a foreclosure in the name of an improper party (no assignment of the security instrument or endorsement of the note).

Steps taken prior to the commencement of the foreclosure may not be protected under the Obduskey decision.  Pre-foreclosure notices, such as a contractually or investor required breach or demand letters, that are not a statutorily required prerequisite to commencement of the foreclosure would appear to be outside the Supreme Court decision.  Similarly, loss mitigation letters sent by the firm or trustee, if not statutorily required, would fall outside of the Supreme Court decision.  If commencing a nonjudicial foreclosure against a nonexistent lien could be deemed abusive, a time barred debt, or in the name of a party who is not the current holder or beneficiary, could be deemed abusive collection efforts, then FDCPA may well apply.  As the Court states, “this is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices…enforcing a security interest does not grant an actor blanket immunity from the Act” (Justice Breyer, Opinion of the Court).

Each firm and trustee will need to continue to appropriately evaluate each matter to ensure foreclosure is proceeding with proper authority and documentation.  One should always remember that regardless of FDCPA applicability, there are state consumer protection statutes that may not mirror the FDCPA distinction between debt collector and security instrument enforcer.  As previously noted, while Obduskey does provide clarification that conduct required to complete a nonjudicial foreclosure is not conduct by a debt collector, just what conduct is outside the Obduskey decision remains to be litigated. 

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