Nonjudicial Foreclosures and the Fair Debt Collection Practices Act

The United States Supreme Court’s unanimous opinion in Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307, 2019 U.S. LEXIS 2090, ___U.S. ___ (March 20, 2019) held that a business engaged in no more than a nonjudicial foreclosure proceeding is not a “debt collector” under the Fair Debt Collection Practices Act (“FDCPA”), except for the limited purposes of Section 1692f(6) dealing with the enforcement of security interests.  The opinion also continues the shift into a more mechanical and textual analysis and approach used by the current United States Supreme Court.

The facts of this case are straight forward. Obduskey defaulted on his mortgage and in 2014, McCarthy & Holthus, on behalf of its client, sent a notice initiating a nonjudicial foreclosure. The notice complied with the mandatory notice under Colorado law and once received by Obduckey, Obduskey responded demanding validation of the debt as allowed under the FDCPA. McCarthy & Holthus did not respond and simply initiated a new nonjudicial foreclosure in 2015. Obduskey then sued McCarthy & Holthus under the FDCPA. The issue before the courts was very limited.

As restated by Justice Breyer, the question before the court was “Does it mean that one principally involved in the enforcement of security interests is not a debt collector (except for the purposes of section 1692f(6))? If that is true, then numerous other provisions of the FDCPA do not apply or does it simply reinforce the fact that those principally involved in enforcement of security interests are also subject to the other provisions of the FDCPA? Strictly reading the statute, Justice Breyer, writing for an unanimous court, held that the last sentence does (with its section 1692f(6) exception) place those whose principal purpose is the enforcement of security interests outside the scope of the primary debt collector definition at section 1692a(6), where the business is engaged in no more that a nonjudicial foreclosing like the one before the court.

This is an important opinion in Texas as Texas is one of the states that allows for nonjudicial foreclosures on real property loans. However, it can also be a trap for the unwary as it is an extremely narrow decision and only deals with situations when a nonjudicial foreclosure action simply meets the minimum requirements of state law and does not do more. Additional actions by McCarthy & Holthus could have easily tipped the scale to where the Supreme Court could have gone the other way on this decision and found that other sections of the FDCPA applied to any additional actions.

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