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The Sixth Circuit Rules That Mortgage Foreclosure is Debt Collection Under the Fair Debt Collection Practices Act

March 16, 2013 Uncategorized

In Glazer v. Chase Home Finance, LLC et al., Glazer sought to include mortgage foreclosure as a debt collection under the Fair Debt Collection Practices Act. The Sixth Circuit Court of Appeals ruled that it was.

The FDCPA prohibits debt collectors from taking certain actions against debtors. The Act is designed to protect consumers from unfair or deceptive debt collection practices and to protect debt collectors from competition that employs unfair practices.

The majority view among the federal district courts has been that mortgage foreclosure is not debt collection. That view is based on the principle that mortgage foreclose is the enforcement of a security interest, rather then the collection of a debt.

To be a debt collector under the Act, one must either 1) have as his or her principal business purpose “the collection of any debts” or 2) “regularly collects or attempts to collect, directly or indirectly, debts owed or due…another.” However, the FDCPA does not actually define the term debt collector. The Act defines the word debt as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which money, property, insurance, or services which are subject of the transaction are primarily for personal, family, or household purposes.”

The Court noted that the definition’s focus on the underlying transaction indicates that whether an obligation is a “debt” depends not on whether the obligation is secured, but rather upon the purpose for which it was incurred. Therefore, a home loan is a debt even if it is secured.

In addition, the Court looked to the plain language definitions of provisions in the Act.  For example, Black’s Law Dictionary defines debt collection as “to collect a debt or claim is to obtain payment or liquidation of it, either by personal solicitation or legal proceedings.”  The Court stated that “if the purpose of an activity taken in relation to a debt is to obtain payment of the debt, the activity is properly considered debt collection.”

The Court also declined to distinguish debt collection from mortgage foreclosure on the grounds that debt collection seeks the payment of funds and mortgage foreclosure seeks the recovery of property. The Court stated it had no doubt the ultimate purpose of foreclosure is, in essence, the repayment of funds.

For these principal reasons, among others, an attempt to foreclose a mortgage is a debt collection. This decision will expand the ability of plaintiffs to bring actions under the FDCPA.

Contact ArborYpsi Law at 734-883-9584 or at bernstein@arborypsilaw.com to speak with Attorney Sam Bernstein.

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