Nonjudicial Foreclosure Not Regulated by the FDCPA


Nonjudicial Foreclosure Not Regulated by the FDCPA

Nonjudicial Foreclosure Not Regulated by the FDCPA

JD Supra-

On March 20, 2019, the U.S. Supreme Court ruled unanimously in Obduskey v. McCarthy & Holthus LLP, 17-1307, 2019 WL 1264579 (U.S. Mar. 20, 2019), that nonjudicial foreclosure is not subject to regulation under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692-1692p (the “FDCPA”).

The FDCPA applies to a “debt collector,” which is defined in section 1692a(6) as any person or entity who “regularly collects or attempts to collect, directly or indirectly, debts owed . . . or due another.” Section 1692a(6) provides that the “term [debt collector] also includes any person who uses [the mail or interstate commerce] in any business the principal purpose of which is the enforcement of security interests.”

Another section of the FDCPA, section 1692f(6), governs the conduct of a debt collector in repossessing property nonjudicially. Although section 1692f(6) applies to nonjudicial foreclosure, it does not impose all of the FDCPA’s regulations on those who merely enforce security interests. Instead, section 1692f(6) prohibits only certain activities, such as threatening to repossess without any intention of actually doing so, or in cases when the party threatening to repossess has no right to do so.

In Obduskey, a lender retained a law firm to conduct a nonjudicial foreclosure on Colorado residential property after the homeowner defaulted on the mortgage secured by the property. In response to the foreclosure notice, the homeowner attempted to invoke rights under section 1692h, which obligates a debt collector to “cease collection” activities until it provides the debtor with a “verification of the debt.” The law firm proceeded with the nonjudicial foreclosure and the homeowner sued in federal court, claiming that the law firm failed to comply with the FDCPA’s verification procedure. The district court dismissed the complaint on the ground that the law firm was not a debt collector within the meaning of the FDCPA. The U.S. Court of Appeals for the Tenth Circuit affirmed on appeal, holding that merely enforcing a security interest through nonjudicial foreclosure is not governed by the FDCPA.


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