The Impact of the Fair Debt Collection Practices Act on Foreclosures
| Publication year | 1988 |
| Pages | 2361 |
| Citation | Vol. 17 No. 12 Pg. 2361 |
1988, December, Pg. 2361. The Impact of the Fair Debt Collection Practices Act on Foreclosures
The Fair Debt Collection Practices Act ("FDCPA") was enacted on September 20, 1977, as Title VIII of the Consumer Credit Protection Act. It became effective March 20, 1978,(fn1) and is designed to eliminate false, abusive, misleading, deceptive and unfair practices by debt collectors attempting to collect consumer debts.(fn2)
Under the original version of the FDCPA, attorneys acting on behalf of clients were excluded from the definition of debt collector.(fn3) However, effective July 9, 1986, the definition in the FDCPA was amended to include attorneys.(fn4) Any attorney who regularly represents clients in the foreclosure of real property securing consumer obligations should be aware of the provisions of the FDCPA and follow its requirements in appropriate situations.
The FDCPA limits only the activities of debt collectors. A debt collector is any person who regularly collects or attempts to collect consumer debts owed to third persons.(fn5) This definition includes attorneys who regularly collect debts owed to clients, but excludes attorneys who are employed as in-house counsel.(fn6) It also excludes attorneys collecting debts owed to themselves, unless a debt was assigned to an attorney for collection after default(fn7) or the attorney uses a different name to collect a debt owed to the attorney.(fn8) An officer of the United States or any state is not considered a debt collector when attempting to collect a debt in the performance of official duties.(fn9)
The FDCPA applies to the collection of consumer debts, meaning,
There is no limitation on the dollar amount of a consumer debt. "Consumer" refers only to a natural person.(fn11) If an attorney is foreclosing on a mortgage or deed of trust that secures a loan made to purchase the personal residence of the debtor or a vacant lot on which the debtor intends to construct a personal residence, the attorney is governed by the FDCPA. Any other loan made for a personal family or household purpose, such as a educational loan,(fn12) which is secured by a deed of trust encumbering real property is subject to the FDCPA. The FDCPA may also extend to an action to evict a tenant from the tenant's primary residence.(fn13) The FDCPA does not govern the collection of purely business-related debts. Therefore, a foreclosure on a personal residence encumbered by a deed of trust securing a commercial loan would not be subject to the FDCPA.(fn14)any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes.(fn10)
When an attorney agrees to represent a client in a foreclosure of real property or other form of debt collection, it is important to determine if the loan is a consumer obligation. If the debt meets the definition of consumer obligation or if it is not clear that the debt is purely business related, the attorney should follow the requirements and restrictions of the FDCPA to avoid liability.
Before commencing a suit or foreclosure action, an attorney generally will call the debtor or send the debtor a letter demanding payment. The FDCPA requires that within five days after the initial communication between the attorney and the consumer regarding the collection of a debt (whether such communication is oral or written), the attorney must provide the consumer with a written notice containing the following:
1) the amount of the debt;
2) the name of the creditor to whom the debt is owed;
3) a statement that unless the consumer disputes the validity of the debt or any portion of the debt within thirty days after receipt of the notice, the attorney will assume the debt to be valid;
4) a statement that if the consumer notifies the attorney in writing within the thirty-day period that the debt or any portion is disputed, the attorney will obtain verification
If the initial demand for payment is in writing these notices should be contained in the demand letter. In addition, the attorney must give a Miranda-type warning in every written or oral communication with the debtor that the attorney "is attempting to collect a debt and that any information obtained will be used for that purpose."(fn16)5) a statement that, upon the consumer's written request within the thirty-day period, the attorney will provide the consumer with the name and address of the original creditor if different from the current creditor.(fn15)
If the consumer notifies the attorney in writing within thirty days that the debt or any portion of it is disputed, or asks for the original creditor's name and address, the attorney must stop efforts to collect the debt until the attorney obtains written verification or the information asked for and has mailed copies to the consumer.(fn17) Although the consumer has thirty days to dispute the debt or request the name and address of the original creditor, the attorney can still demand payment within a shorter time or commence suit within a shorter time, as long as the debtor is clearly notified of the intent to do so.(fn18) The failure of a consumer to dispute the validity of the debt may not be construed by a court as an admission of liability by the consumer.(fn19)
The term "communication" is broadly defined as "conveying of information regarding a debt directly or indirectly to any person through any medium."(fn20) Instituting formal legal action against a consumer, such as issuing and serving a summons and complaint or filing a public trustee foreclosure proceeding, is not a communication and does not confer the notice and validation requirements.(fn21)
Congress repealed the attorney exemption...
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