Wednesday, January 2, 2019

Reading the FDCPA: Are Foreclosure Actors Debt Collectors Under the Law?

A recent case to go before the U.S. Supreme Court, Obduskey v. McCarthy Holthus LLP, raises an issue that links foreclosure actions with the Fair Debt Collection Practices Act (FDCPA). More specifically, the issue in the case is whether a party taking foreclosure actions can be defined as a debt collector under the FDCPA, and thus whether a homeowner who is being subjected to those foreclosure actions has rights related to the foreclosure under the FDCPA. We will say more about the case and how its outcome could impact both homeowners and consumers more generally in the Oak Park, Illinois area.

Facts of Obduskey v. McCarthy Holthus LLP

The facts of the case are relatively simple. The plaintiff and homeowner, Dennis Obluskey, took out a mortgage in 2007 through Magnus Financial Corporation. His mortgage ultimately was sold to Wells Fargo, which then became the mortgage servicer. The homeowner got behind on mortgage payments between 2007 and 2009. By 2009, Wells Fargo began a nonjudicial foreclosure.

As a side note, Illinois is not a nonjudicial foreclosure state. To be clear, states in the U.S. either are judicial foreclosure states or nonjudicial foreclosure states. Illinois is a judicial foreclosure state, which means that any foreclosure needs to go through the court system. Nonjudicial foreclosure states allow a lender to foreclose on a home without going through the court system. Although the case at issue arises out of a nonjudicial foreclosure state, its outcome nonetheless could affect the rights of homeowners and consumers in judicial foreclosure states given that it could expand the definition of “debt collector” under the FDCPA.

Now, back to the facts of the case. In the language of the foreclosure notice to the homeowner, Wells Fargo indicated that its counsel, McCarthy Holthus LLP, “may be considered a debt collector attempting to collect a debt.” McCarthy, however, did not ask the homeowner to make any payments on the debt. The homeowner later filed a claim alleging that McCarthy and Wells Fargo violated the FDCPA.

Does the FDCPA Apply in Any Foreclosure Cases?

The question that the U.S. Supreme Court will need to address is whether the FDCPA is applicable in any foreclosure cases, and specifically in nonjudicial foreclosures. The case previously was heard by the 10th Circuit, which concluded—in line with a previous decision from the 9th Circuit—that the FDCPA is not applicable in nonjudicial foreclosure cases. Other circuits have disagreed. For example, the U.S. Courts of Appeals for the 4th Circuit, the 5th Circuit, and the 6th Circuit all have determined that the FDCPA does apply in these foreclosure cases. The 7th Circuit, which hears cases out of Illinois, has not ruled on the issue.

Are threats of foreclosure attempts to collect debts? Do such foreclosure attempts then make lenders debt collectors in certain circumstances? The Supreme Court will hear the case on January 7, 2019, and the decision likely will be handed down in May or June. If the Supreme Court determines that lawyers who are carrying out foreclosure proceedings are debt collectors under the FDCPA, it would broaden the scope of who can be a debt collector under the law and thus would broaden the types of situations in which a consumer may have FDCPA protections.

Contact an Oak Park Consumer Protection Lawyer

If you have questions about the FDCPA and consumers’ rights and protections, you should speak with an Oak Park consumer protection attorney. An advocate at our firm can discuss your situation with you. Contact the Emerson Law Firm for more information.

See Related Blog Posts:
Advocates Seek Consumer Protection from Abusive Debt Collection Tactics
Wells Fargo Admits to Hundreds of Wrongful Foreclosures

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