foreclosureThe Fair Debt Collection Practices Act is a federal statute that protects consumers from debt collectors.  But just when is a debt collector NOT a debt collector under the FDCPA?

The Ninth Circuit recently held that a trustee, foreclosing on a Deed of Trust is not a debt collector.  The court held that when a trustee carries out the contractual and statutory requirements for foreclosing property subject to a deed of trust, the trustee does not act as a debt collector.  He is not seeking to collect a monetary debt from the consumer, but rather, simply foreclosing on property.  See Ho v ReconTrust, Co, NA.

In Michigan and many other norther states, people purchase their homes with a mortgage loan.  They own their property subject to the lender’s lien.  In many western states, a home owner may still obtain a mortgage loan, but the homeowner does not take title to the property. Rather, its vested in a middle man called a Trustee.  The Trustee holds the property until the debt is paid off. If the homeowner pays off the debt, then the Trustee transfers it to the homeowner.

In Ho, the homeowner went into default on his home loan.  The trustee sent Ho the statutorily required notices and Ho alleged that these notices violated the FDCPA.  The District Court dismissed Ho’s claim and the 9th Circuit affirmed in a 2 to 1 decision.

The 9th Circuit likened the trustee to a tow truck driver.  A tow truck guy does not seek money from a defaulting consumer, but merely seeks to repossess the collateral.  Same thing with the trustee.  Its interesting to note, however, that this opinion is a departure from holdings in the Fourth and the Sixth Circuits.  These latter circuits hold that when someone acts like a trustee or a tow truck driver, their efforts are part of a collective effort to collect money and hence the Fair Debt Collection Practices Act does apply to their actions.

If you have been harassed or abused by a debt collector, call Attorney Gary Nitzkin at Michigan Consumer Credit Lawyers at (248) 353-2882 or email him at [email protected].  The call is free and the advice is priceless.  Call today for a free no obligation consultation.