Top 14 questions on loan servicers and FDCPA debt validation process

Real Estate Attorney with The Law Offices of Steven C. Vondran, P.C. Attorney at Law


The Fair Debt Collection Practices Act and Foreclosure - General Overview


This FDCPA blog is a three part series

Here is part one

Here is part two

Here is part three


What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act ("FDCPA") is a federal law that prohibits "debt collectors" from engaging in certain types of prohibited conduct when seeking to collect a debt.

Some of the things that are prohibited by thre FDCPA are:

(1) harassing debt collection practices

(2) abusive debt collection practices

(3)  illegal debt collection tactics

(4) Unconscionable debt collection activities

(5) False and deceptive debt collection methods

The rationale for the law is that these types of acts and practices tend to cause consumers damage through:

(1) creating marital instability

(2) calls to work creating potential loss of job

(3) creating bankruptcy filings

(4) creating other invasions of privacy

As such, there is important publicly policy reasons allowing persons to hold debt collectors liable for violating the act, even though a legitimate debt may be owed.  

In short, the FDCPA is designed to import some civility and decency into the debt collection arena where many ruthless creditors will say and do anything to collect on a debt.

Where can I find the text of the FDCPA?

Check out this link at the Federal Trade Commission ("FTC") re FDCPA law

What types of entities are "debt collector" covered by the act?

A debt collector is someone or some entity that collects the debts of another.

Typical examples of debt collectors may include:

A.  Collection agencies

B.  Debt collection attorneys (see Wilson v. Draper & Goldberg discussed below)

C.  Debt buyers

D.  Sometimes loan servicers (See below)

What "debts" qualify under the FDCPA?

The FDCPA only applies to "consumer debts" (i.e. a debt incurred for personal, family, or household purposes)

Business debts are not protected.

Does the FDCPA apply in foreclosure cases?

Maybe.  It depends.  

In order for a FDCPA violation to occur in a California foreclosure case, there will need to be at least two main items properly pled in the complaint:

A.  That the loan servicer is a "debt collector" (i.e. they obtained the debt after the loan was in default)

B.  They committed a violation of the FDCPA

Let's take a deeper look at these two issues:

First, Is a loan servicer a "debt collector" under the FDCPA?

It seems clear they can be.

First, read this FTC opinion on the issues of loan servicers being covered by the FDCPA.

Next, there is case law on point that dictates a loan servicer can, in the proper circumstances, be characterized as a "debt collector" under the FDCPA.  Meaning they would have to comply with the FDCPA.

Where a loan servicer becomes the loan servicer after the borrower is in default, the loan servicer is a “debt collector” and becomes obligated to comply with the Fair Debt Collection Practices Act in all respects.  See Santoro v. CTC Foreclosure Serv. Corp., 12 F. App'x. 476, 480 (9th Cir. 2001); Kee v. R-G Crown Bank, 656 F. Supp. 2d 1348, 1354 (D. Utah 2009) (determining "that a loan servicer . . . is only a 'debt collector' within the meaning of the FDCPA if it acquires the loan after it is in default").   See also Alibrandri v. Fin. Outsourcing Servs., Inc., 333 F.3d 82 (2d Cir. 2003) (holding that a debt was in “default” and a service provider was a “debt collector”, by virtue of the service providers collection letter declaring the debt in default and informing the debtor that the service provide was, in fact, a debt collector).

Next, what acts constitute a violation of the FDCPA in the foreclosure context?

The general rule seems to be that the mere act of filing a notice of default, or pursuing a non-judicial foreclosure in and of itself is not a debt collection activity, and thus, is not covered by the FDCPA.

For example, see Huck v. Countrywide Home Loans, Inc., No. 3:09-cv-553-JCM (VPC), (Dist. Ct. Nevada 2011) which held in ruling on a motion to dismiss:

"Under the FDCPA, a debt collector is one who collects the debt of another. 15 U.S.C. § 1692(a)(6). This court agrees with other courts in the Ninth Circuit that notices of default do not qualify as debt collection. See Maynard v. Cannon, 650 F. Supp. 2d 1138, 1142 (D. Utah 2008) (finding that servicing a notice of default is not subject to FDCPA regulation). Here, defendants are not debt collectors under the FDCPA. Neither Countrywide as the loan originator, ReconTrust as the original trustee, MERS as the nominee for the beneficiary, or Mr. Patel as an employee of Countrywide, can be considered debt collectors under the statute because none of these parties participated in acts constituting debt collection. See Santoro v. CTC Foreclosure Serv. Corp., 12 F. App'x. 476, 480 (9th Cir. 2001); Kee v. R-G Crown Bank, 656 F. Supp. 2d 1348, 1354 (D. Utah 2009) (determining "that a loan servicer. . . is only a `debt collector' within the meaning of the FDCPA if it acquires theloan after it is in default"); Hulse v. Ocwen Fed. Bank, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002) (holding that merely foreclosing on a property pursuant to the deed of trust without collecting debt does not fall within the terms of the FDCPA.)

Defendants initiated foreclosures on both properties by filing notices of default and no defendant acquired the loan after default. Thus, no acts constituting debt collection have been alleged. Also, regardless of whether any defendant is a debt collector under the statute, a non-judicial foreclosure is not debt collection and cannot be the basis of a FDCPA violation. See Hulse, 195 F. Supp. 2d at 1204 (non-judicial foreclosure is not debt collecting for purposes of FDCPA). Thus, the court dismisses plaintiffs' claim under the FDCPA without prejudice."

As another Court put it in Park v. Wachovia Mortgage, Case No 10-cv-1547 WQH (RBB) U.S. Dist. Ct. San Diego (2011) you need something "outside the foreclosure process" to allege an FDCPA violation:

"The Fair Debt Collection Practices Act does not apply to foreclosure activities. See Walker v. Equity 1 Lenders Group, Case No. 09cv325 WQH (AJB), 2009 WL 1364430 at *7 (S.D. Cal. May 14, 2009) ("The activity of foreclosing on [a] property pursuant to a deed of trust is not the collection of a debt within the meaning of the FDCPA ....") (quotation omitted); Hulse v. Ocwen Fed. Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002) ("Foreclosing on a trust deed is distinct from the collection of the obligation to pay money. The FDCPA is intended to curtail objectionable acts occurring in the process of collecting funds from a debtor.... Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property.").

To the extent the Complaint alleges violation of the Fair Debt Collection Practices Act related to the ordinary foreclosure process, the act does not apply because the allegations are not related to collection activities. To the extent Plaintiffs allege Defendants acted outside of the scope of the ordinary foreclosure process, the Complaint fails to adequately allege how Defendants constitute "debt collectors" within the meaning of the act, and how Defendants violated the act. See Iqbal, 129 S. Ct. at 1950. The Court concludes that Plaintiffs have failed to allege sufficient facts to support a claim for violation of the Fair Debt Collection Practices Act. Plaintiffs twelfth claim for violation of the Fair Debt Collection Practices Act is dismissed as to Wachovia Mortgage, FSB and Wachovia Mortgage Corporation."

A similar result was reached in an Arizona District Court case which held:

"Courts also have held that a non-judicial foreclosure proceeding is not the collection of a "debt" for purposes of the FDCPA. See Hulse v. Ocwen Fed. Bank, 195 F.Supp.2d 1188, 1204 (D.Or.2002) (distinguishing foreclosure of interest in property from efforts to collect funds from debtor); Gray v. Four Oak Court Ass'n, 580 F.Supp.2d 883 (D.Minn.2008) (finding that homeowners association lien foreclosure proceeding to recover assessment fees was not debt collection activity covered by FDCPA)."

See Mansour v. Cal-Western Reconveyance Corp., 618 F. Supp. 2d 1178 - Dist. Court, D. Arizona 2009

So this begs the question, what types of acts are "collection activities" that are outside the "scope of the ordinary foreclosure process" so that the loan servicer (who acquired your loan after default) would be subject to the FDCPA.

Some possible examples might include:

A.     Phone calls to the borrower demanding payment of delinquencies;

B.   Letters mailed to the borrower demanding payment of late fees, arrears, and mortgage payments;

C.    Other collection tactics that seek to have the borrower mail in money on a debt;

D.    Failure to validate a debt as required after making a debt collection attempt;

E.   Failing to respond to a borrowers written "debt validation letter" after a collection attempt was made.

These are just some possibilities to consider.  Whatever the case, the specific violations alleged have to be alleged in the complaint in order to potentially state a cause of action for violation of the FDCPA.

Is an attorney or law firm foreclosing on a property (acting as trustee) a debt collector under the FDCPA?

Maybe.  One case to look into is Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir. 2006) wherein the Fourth Circuit came to the conclusion that foreclosure lawyers may come under the general definition of “debt collector” subject to all of the FDCPA requirements as the lawyers, because most foreclosure lawyers frequently settle the foreclosure with a payment of money from a refinancing, a payment of back payments, or a payoff from the homeowner’s sale of the home.


If you need to send a debt validation letter you can access our online legal documents store here.

For more information, check us out at Foreclosure Defense Resource Center.

- Attorney Steve -


This is general legal information only as is not legal advice or a susbstitute for legal advice.  The information above may not be accurate, complete, or updated.  Do not rely on this information.  Consult with a real estate foreclosure lawyer.  Copyright 2012 The law offices of steven c. vondran, p.c. - all rights reserved.


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