Law firms retained to pursue foreclosure against homeowners are “debt collectors” subject to the federal Fair Debt Collection Practices Act, a federal appeals court ruled in a case involving law firm Samuel I. White PC from Virginia Beach, Virginia.
In its published 3-0 decision, the 4th U.S. Circuit Court of Appeals rejected a Rockville, Maryland, firm’s argument that foreclosure is not an effort to collect a debt but to pursue the mortgagee’s right to the property after the debt has clearly gone unpaid.
A foreclosure action is in fact an attempt to collect a debt, albeit by more extreme means, insofar as the homeowner’s financial obligation remains even as a foreclosure proceeding begins, the 4th Circuit said Oct. 7. If the law did not apply to foreclosure proceedings, the law’s goal of protecting debtors from unfair collection practices would be thwarted, the court added.
The law firm’s argument, “if accepted, would create an enormous loophole in the act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt,” Judge Paul V. Niemeyer wrote for the 4th Circuit. “We see no reason to make an exception to the act when the debt collector used foreclosure instead of other methods.”
The court’s decision revived homeowner Renee L. McCray lawsuit against the White firm and the substitute trustees seeking foreclosure of her property after she allegedly failed to make payments to the mortgage servicer, Wells Fargo. McCray alleges the White firm and trustees violated the FDCPA by failing to provide adequate notice and respond to requested information about her debt.
The appeals court said the federal law defines debt collector as one “who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” Under this definition, debt collectors include firms hired by a creditor seeking foreclosure, the 4th Circuit said.
The 4th Circuit also noted the White firm’s message to McCray about the coming foreclosure action belied its argument that it was not a debt collector.
The message not only provided specific loan information, including the lender’s name and the amount required to cure the default, but concluded with the following statement, the 4th Circuit said: “This is an attempt to collect a debt. This is a communication from a debt collector. Any information obtained will be used for that purpose.”
White-firm attorney Robert H. Hillman, who argued the case on behalf of the practice, said he was not surprised by the ruling as the law is fairly clear that firms pursuing foreclosure are “debt collectors.” He added that the White firm is prepared to defend its actions as in keeping with the FDCPA.
McCray’s appellate attorney, Kenzie M. Rakes of Raleigh, agreed that the court’s decision followed existing law and “clarified when a person does or does not qualify as a debt collector.”
The 4th Circuit decision is McCray v. Samuel I. White PC.