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of one concept implies the exclusion of the unexpressed or reading a statute in a way which avoids surplussage. On the other hand, some courts rely on the fiction that the holder of the security interest is somehow the true owner of the property in question and that it is somehow unjust to allow the debtor to continue to possess the property. Thus the foreclosing entity is merely taking back what is truly its property and need not obtain a judgment in order to do so, a notion based on the mistaken assumption that all foreclosable liens are purchase money mortgages.
v. Zartman, 823 P.2d 120, 124 (Colo. 1992)(foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt). In fact, every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction and applying the proceeds to pay for the outstanding debt). Glazer v. Chase, at p. 11. The existence of redemption rights and the potential for deficiency judgments demonstrate that the underlying purpose of foreclosure is to obtain payment of a debt, Glazer, id., citing Eric M. Marshall, Note, The Protective Scope of the Fair Debt Collection Practices Act: Providing Mortgagors the Protection They Deserve from Abusive Foreclosure Practices, 94 Minn.L.Rev. 1269, 1297-98 (2010) and not, more esoterically, to repossess (or become possessed of) the security. No provision of the Act excludes forclosure or the enforcement of security interests from its reach, generally, and some affirmatively suggest that such activity is debt collection. Section 1692f prohibits debt collectors from using unfair or unconscionable means to collect any debt, and the non-exhaustive list of specific activities applied to that includes taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if there is no present right to possession of the property claimed as collateral through an enforceable security interest. 15 U.S.C. Sec. 1692f(6)(A). As Glazer points out, the examples presence within a provision that prohibits unfair means to collect or attempt to collect any debt suggests that mortgage foreclosure is a means to collect a debt. Glazer, p. 11. And Section 1692i requires a debt collector bringing a legal action to enforce an interest in real property securing the consumers obligation to file in the judicial district where the property is located. 15 U.S.C. Sec. 1692i(a)(1). This provision applies only to debt collectors as defined in the first sentence of the definition 1692a(6). This suggests that filing any type of mortgage foreclosure action is debt collection.
Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3rd Cir. 2005)
Piper v. Portnoff was a case involving utility bills. The defendant lawyers made numerous demands on outstanding utility bills without adhering to the FDCPA. When the plaintiff did not pay the bills, the firm obtained a lien on the plaintiffs home. Then the lawyers sought to foreclose on the lien. The defendants attempted to argue that the FDCPA did not apply because they had only sought to foreclose on a security, and the Third Circuit rejected this argument. The Piper case did involve numerous pre-foreclosure notices and threatening letters involving a simple bill before the bill was converted to a lien, so the court was probably influenced by the fact that the liens purpose in this case was simply a step in the collection process which foreshadowed in very short order the foreclosure of the lien to collect the debt. The sequence of events highlighted the absence of what might be
considered a normal part of mortgages which the courts applying an unjust enrichment theory accept as given, i.e., that the lien was part of the means by which the plaintiffs had purchased the house.1 The sequence of events in Piper demonstrates that not all property liens arise in a way which suggests that the lender truly owns the property rather than the debtor, and negated the unjust enrichment aspect of the argument in favor of permitting foreclosure as not the collection of a debt. In reality, as Glazer points out, nothing is clearer than that mortgage foreclosure is all about collecting a debt. Its purpose is very simply to obtain money to pay a debt, and any overage is due back to the debtor. The holding of Piper was that a debts conversion to a lien did not alter its character as a debt. Nothing in the FDCPA suggests a different rule for cases involving purchase-money security vs. security interests that arise in other ways as it did in Piper. An even more powerful case relating to this is Romea v. Heiberger & Assocs., 163 F.3d 111 (2d Cir. 1998).
Romea v. Heiberger & Associates, 163 F.3d 111 (2d Cir. 1998)
Romea was a case involving eviction for failure to pay rent. In this case, the plaintiffs had fallen behind in rent due, and the defendant sent them a three-day notice as required by New York law as a prerequisite of eviction. The notice did not contain the required FDCPA mini-miranda warning or right to demand verification, and the plaintiffs filed suit under the FDCPA. The defendant argued that since the three-day notice was a statutory prerequisite for repossession of the property for nonpayment of rent, it was not a communication in an attempt to collect a debt. Noting that the defendant made no attempt to deny that its aim in sending the letter was at least in part to induce Romea to pay the back rent she allegedly owed, the court held that the fact that the letter was a statutory prerequisite to eviction was wholly irrelevant to the requirements and applicability of the FDCPA. The notice was an attempt to collect a debt that had to comply with the FDCPAs requirements. The Romea court also rejected the argument that because the 3-day notice was a statutory prerequisite to eviction it was a pleading. In the first place, the required notice was not a pleading at all under New York law, but merely a notice to the tenant of what must be done to forestall a summary proceeding. More significantly, however, the 2nd Circuit construed the 15 U.S.C. Sec. 1692a(6)(D) exemption to apply only to process servers, and not to those who prepared the communication that was served on the consumer.
A frequent justification for the special treatment of security interests is that, unlike the payment of general debts where a debtor is unable to pay, where there is a security interest made as part of the payment, it could be said that the debtor does not really own the house and would be unjustly enriched by being permitted to keep it without paying. As Piper shows, however, this is an extremely slippery slope.
Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006)
In Wilson v. Draper & Goldberg, PLLC, 443 F.3d 373 (4th Cir. 2006), a bank hired a law firm to foreclose on a house because the home loan was in default. The firm commenced foreclosure proceedings and contacted the plaintiff to say her home would soon be sold at auction. The plaintiff filed suit under the FDCPA. The defendant argued that the plaintiffs debt ceased to be a debt for purposes of the Act once foreclosure proceedings began, and that foreclosure was distinct from the enforcement of an obligation to pay money. The Fourth Circuit rejected the argument, holding that the debt remained a debt and that the firms actions surrounding the foreclosure proceeding were attempts to collect that debt. Id., 443 at 376. The court noted specifically that the firms 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. Id. Seeing no reason to make an exception to the Act when the debt collector uses foreclosure instead of other methods, the court held that the firms foreclosure action was an attempt to collect a debt. Id. at 376, 378.
Gray v. Four Oak Court Assn, Inc. 580 F.Supp.2d 883 (D.Minn. 2008)
In Gray v. Four Oak Court Assn, Inc., 580 F.Supp.2d 883 (D.Minn. 2008) the court rejects application of the FDCPA to foreclosure based on the supposed definition of debt collector. According to the Gray court, the statutes definition of a debt collector clearly reflects Congresss intent to distinguish between the collection of any debts and the enforcement of security interests. This is so, according to Gray, because the first sentence of the definition in Sec. 1692a(6) defines a debt collector as an person who uses any instrumentality of interstate commerce or the mails [for] the collection of any debts The third sentence of Sec. 1692a(6) provides that for purposes of Sec. 1692f(6) a debt collector is also any person who uses any instrumentality of interstate commerce[for] the enforcement of security interests. Therefore, if a party satisfies the first sentence, it is a debt collector for all purposes, but if the party only satisfies the third sentence it is only a debt collector for purposes of 1692f(6). If the enforcement of a security interest was synonymous with debt collection, the third sentence would be surplussage because any business with a principal purpose of enforcing security interests would also have the principal purpose of
collecting debts. Id., 580 F.Supp.2d 883, 888. (emphasis added). Thus the court held that the enforcement of a security interest, including a lien foreclosure, does not constitute the collection of any debt. Although there is a superficial appeal to the Gray courts reasoning, it is untenable. It simply ignores the fact that foreclosure is inevitably intended as a means to collect a debt and builds a huge loophole into the Act which would frustrate the legislative intent. There is no basis in Gray for distinguishing the situations that arose in Piper, where the debt was converted to a security interest a process which happens, incidentally, under Missouri law where a judgment in civil court becomes a lien on real property. Again, the Glazer court flatly rejects the argument, citing Piper. The third sentence of the definition does not except from the definition of debt collection the enforcement of security interests; it simply makes clear that some persons who would be without the scope of the general definition are to be included where Sec. 1692f(6) is concerned: [e]ven though a person whose business does not primarily involve the collection of debts would not be a debt collector for purposes of the Act generally, if his principal business is the enforcement of security interests he must comply with the provisions of the Act dealing with non-judicial repossession abuses. Section 1692a(6) thus recognizes that there are people who engage in the business of repossessing property whose business does not primarily involve communicating with debtors in an effort to secure payment of debts. Piper, 396 F.3d at 236. And, in the words of the Fourth Circuit, [t]his provision applies to those whose only role in the debt collection process is the enforcement of a security interest. Wilson, 443 F.3d at 378. This reasoning may seem a little strained, but a contrary reading excludes a large category of debt collectors for no principled reason at all in a way which inevitably would, and widely has, led to abuses that frustrate the purposes of the Act. And there is a group that satisfies this definition: repossession agencies and their agents, who typically enforce a security interest i.e., repossess or disable property when the debtor is not present, in order to keep the peace. See, Glazer v. Chase Home Fin. Slip. Op. at 15, citing cases applying the definitions third sentence to repossession agencies: Montgomery v. Huntington Bank, 346 F.3d 693, 700 (6th Cir. 2003), Nadalin v. Auto Recovery Bureau, Inc., 169 F.3d 1084, 1085 (7th Cir. 1999), James v. Ford Motor Credit Co., 47 F.3d 961, 962 (8th Cir.1995)(noting that a few provisions of the Act subject repossession companies to potential liability when they act in the enforcement of others security interests).
Conclusion
The majority of circuit courts have held that foreclosure is an attempt to collect a debt, and those that have not have adopted an approach that will, in the majority of cases, lead to a similar result. It is very likely that eventually all the courts will reach this common sense application of the FDCPA.