Non-Judicial Foreclosure and the FDCPA: How the Supreme Court's Looming Decision in Obduskey v. McCarthy & Holthus LLP Could Affect Law Firms and Collections Agencies Alike

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Non-Judicial Foreclosure and the FDCPA: How the Supreme Court’s Looming Decision in Obduskey v. McCarthy & Holthus LLP Could Affect Law Firms and Collections Agencies Alike

Non-Judicial Foreclosure and the FDCPA: How the Supreme Court’s Looming Decision in Obduskey v. McCarthy & Holthus LLP Could Affect Law Firms and Collections Agencies Alike

Lexology-

The United States Supreme Court heard oral argument in the case Obduskey v. McCarthy & Holthus LLP on January 7, 2019. The Court’s ruling in this case could have major implications for all organizations—including law firms—that utilize non-judicial foreclosure regarding defaulted mortgages.

The primary question in Obduskey is whether the Fair Debt Collection Practices Act (the “FDCPA”), 15 U.S.C. § 1692-1692p, applies to non-judicial foreclosures. There is currently a circuit split regarding this question: the Fourth, Fifth, and Sixth Circuits apply the FDCPA to non-judicial foreclosures, while the Ninth and Tenth Circuits have held that the FDCPA does not apply to non-judicial foreclosures. The Obduskey decision should resolve this split.

The FDCPA only applies to “debt collectors,” defined under the statute as any person who “regularly collects or attempts to collect, directly or indirectly, debts owed or due . . . another.” 15 U.S.C. § 1692(a)(6). This definition, however, has certain carve-outs and does not traditionally apply to parties who are seeking only to enforce a security interest without obtaining any payment (e.g. repossessing a car). In the foreclosure context, judicial foreclosure where the creditor is seeking a deficiency judgment has traditionally fallen under the rubric of the FDCPA, as actions taken in such a proceeding are to collect a monetary debt. With non-judicial foreclosure where no deficiency is sought, however, the question becomes murkier. Hence the circuit split.

[LEXOLOGY]

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