Part 2 loan servicers and the FDCPA in the foreclosure process

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

This FDCPA blog is a three part series


Here is part one


Here is part two

Here is part three 



What about the 1692f(6) ‘exception’ in the FDCPA?


Section 1692f(6) of the FDCPA states:


A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section:

(1) The collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.


(2) The acceptance by a debt collector from any person of a check or other payment instrument postdated by more than five days unless such person is notified in writing of the debt collector’s intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit.


(3) The solicitation by a debt collector of any postdated check or other postdated payment instrument for the purpose of threatening or instituting criminal prosecution.

(4) Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.


(5) Causing charges to be made to any person for communications by concealment of the true purpose of the communication. Such charges include, but are not limited to, collect telephone calls and telegram fees.


(6) Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—


(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;


(B) there is no present intention to take possession of the property; or


(C) the property is exempt by law from such dispossession or disablement.


(7) Communicating with a consumer regarding a debt by post card.


This section appears to create a right to challenge a debt collector for not having a right to present possession of the real property secured by the loan.


This challenge seems akin to a "produce the note" type of challenge (in other words, it appears you can demand the loan servicer, who obtained rights to service your loan after you were in default, to prove standing to enforce your mortgage, and to prove they are seeking to collect on someones behalf, who has the present right to possess the security).  Such challenge appears to be available despite the normal rule that the act of foreclosing is not a debt collection activity.  


There was an interesting case that discussed this unique situation and potentially creating another ground to allege a FDCPA violation in the foreclosure context.  



For example, in one Idaho federal foreclosure case the court stated:


"Sections 1692e(2)(a) and 1692(e)(1) of the FDCPA prohibit "any false, deceptive, or misleading representation . . . in connection with the collection of any debt." 15 U.S.C.A. § 1692e. For example, a debt collector may not falsely represent the "character, amount, or legal status of any debt" or use "any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer." Id. Any misrepresentation must be material, in that it would likely mislead "the least sophisticated debtor." Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1030 (9th Cir. 2010). The FDCPA is a strict liability statute that "makes debt collectors liable for violations that are not knowing or intentional." Id. at 1030. Additionally, the FDCPA is a remedial statute and must be construed liberally in favor of the debtor. See Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162, 1171 (9th Cir. 2006)."


See Van Kirk v. Bank of America Corporation, Civil No. 1:11-cv-00621-BLW-REB, (Dist. Court, D. Idaho 2012).  It is interesting that the Van Kirk court found (via the internally cited Amacost case) that a "narrow exception" to the normal rule that the act of foreclosing is not a debt collection activity:


"Generally, non-judicial foreclosure actions do not constitute "debt collection activity" under the FDCPA. See Hulse v. Ocwen Fed. Bank, FSB, 195 F. Supp. 2d 1188, 1204 (D. Or. 2002) ("[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). However, in Armacost v. HSBC Bank USA, 2011 WL 825151 (D. Idaho 2011), this Court's U.S. Magistrate Judge Larry M. Boyle found a narrow exception to the general rule within section 1692f(6) of the FDCPA. See id at *6 ("Accordingly, to the extent Plaintiff's Complaint attempts to make a claim under the FDCPA other than under section 1692f(6), Defendant's motion to dismiss should be granted."). Section 1692f(6) of the FDCPA reads:


A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section. . . .


(6) Taking or threatening to take any non-judicial action to effect dispossession or disablement of property if —


(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest;


(B) there is no present intention to take possession of the property; or


(C) the property is exempt by law from such dispossession or disablement.

15 U.S.C.A. § 1692f(6).


"Plaintiff does not specify which part of section 1692f she claims Defendants violated; indeed, she lists only section 1692 generally. See Pl.'s Compl. at p. 7 (Docket No. 1). Broadly construing both the allegations of her Complaint and the FDCPA (while recognizing Plaintiff's explicit reference within her Complaint to Armacost and the "exception" identified therein (see id at ¶ 37)), the Court is of the view that Plaintiff's general allegations concerning Defendants' standing to enforce the Note, could equate to a claim that Defendants took "non-judicial action to effect dispossession or disablement of property . . . [with] no present right to possession of the [P]roperty claimed as collateral through an enforceable security interest. . . ." Accord Armacost, 2011 WL 825151; see also 15 U.S.C.A. § 1692f(6)(A)."


This is interesting, and seems to make the case that where the servicer (if the servicer is deemed a “debt collector” or perhaps if even they are not a debt collector) fails to validate a debt where conflicting information exists as to who the legal owner of the loan is, and where the standing to enforce the note is validly and reasonably disputed, that maybe filing a FDCPA claim would be proper seeking the full range of remedies and damages, (including a possible injunction to halt the foreclosure under Cal. B&P 17203).  


In fact, our firm has obtained a foreclosure injunction on similar grounds, and a demurrer to the FDCPA cause of action was overruled in a California case earlier this year.  Click here for details.


Another case discussed this same principle (see Lettenmaier v. Federal Home Loan Mortgage Corporation, Dist. Court, D. Oregon 2011) held:


"While Hulse and other cases held that actions taken in foreclosing on real property were not "debt collection" activities for purposes of section 1692e, or section 1692f(1)-(5), those cases nonetheless excepted claims brought under section 1692f(6), or did not discuss the issue. E.g., Armacost, 2011 WL 825151; see also Montgomery v. Huntington Bank, 346 F.3d 693, 700-01 (6th Cir.2003) ("except for purposes of § 1692f(6), an enforcer of a security interest . . . does not meet the statutory definition of a debt collector under the FDCPA").”



Some cases, including the Fifth Circuit decision referred to in Allen, have gone further and held that "a party who satisfies § 1692a(6)'s general definition of a `debt collector' is a debt collector for the purposes of the entire FDCPA even when enforcing security interests." Kaltenbach v. Richards, 464 F.3d 524, 528-29 (5th Cir. 2006) (criticizing the Hulse decision's focus on the specific debt collection activity at issue when, in the Fifth Circuit's opinion, the inquiry is whether the party met the general statutory definition of a debt collector). But again, there appears to be no dispute that activities challenged under section 1692f(6) are debt collection activities subject to the FDCPA."


This makes for an interesting landscape, and makes the case for sending  debt validation letter when a consumer loan homeowner is facing foreclosure and is subject to debt collection activities by a debt collector loan servicer.


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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