Is a Foreclosure-Related Letter an Attempt to Collect a Debt?

Foreclosure-related notices are treated differently than other types of debt collection letters. There are several important factors that determine whether they are subject to the Fair Debt Collection Practices Act.

The Fair Debt Collection Practices Act prohibits various actions (like harassment and inaccurate statements) by so-called “debt collectors.” Successful claimants under the FDCPA can obtain actual damages, statutory damages, attorneys’ fees and litigation costs. One of today’s biggest issues under the FDCPA is whether certain entities that are proceeding with a foreclosure constitute “debt collectors.”

There are 3 types of debt collectors. First, there are those whose principal purpose is to collect debts. Second are those who regularly collect debts owed to another. Third, there are those who collect their own debts but under a different name as if they were debt collectors. While the idea of collecting a debt sounds relatively straight forward, it is far from it. There is a serious issue today about whether entities engaging in “the enforcement of security interests” constitute debt collectors in most circumstances. A security interest in somebody’s property means that a debt is “secured” by an interest in property, like a mortgage. Courts have disagreed about the circumstances under which a foreclosing loan servicer or its attorney can be deemed a debt collector and thus be sued under the FDCPA.

Rhode Island’s federal court decisions to date suggest that in order to bring suit under the FDCPA in connection with a foreclosure attempt, the foreclosing entity and its attorney must also need to be seeking money (for example, by trying to collect a post-foreclosure deficiency). In other words, if the actions they are taking are solely related to foreclosure, and not collecting money, they may not be subject to the FDCPA. This is actually rare. For example, most lenders and their attorneys use foreclosure-related notices to preserve the right to collect a deficiency. A deficiency is the difference between the amount owed and the amount the house sells for at foreclosure. Moreover, they often send notices to individuals who are not required to receive them. This suggests they are seeking payment of the debt rather than sending legally-required notice.

But even if the letter is not subject to the FDCPA, don’t give up hope. Just because the FDCPA does not apply does not mean that you don’t have defenses to foreclosure. Enright Law will review the loan file as well as all foreclosure-related documents to determine whether the lender has violated a law governing loans, loan servicing, or foreclosure. However, this issue stresses how important choosing the right attorney can be. Many attorneys reflexively file FDCPA actions regardless of whether that statute applies rather than conduct a true analysis of any and all violations of law that could get you relief. Proceeding under the wrong statute or cause of action can be the difference between being compensated and having your case dismissed.

photo: https://www.flickr.com/photos/basicgov/3993310255/