Mortgage Servicing Rules, the FDCPA, and Your Legal Rights
Sometimes a homeowner can make a defense to a foreclosure based on a mortgage servicer’s violation of rules governing this industry. They also may have rights that they can assert under the federal Fair Debt Collection Practices Act (FDCPA). These defenses may not defeat the foreclosure entirely, but they may delay it or give you some leverage in negotiations.
The FDCPA will not apply in many circumstances, but states may have similar debt collection laws that apply to foreclosures.
Federal mortgage servicing rules are generally meant to encourage mortgage servicers and homeowners to find alternatives to foreclosure. They also provide requirements for communications between the lender and the homeowner. If the lender fails to give you proper notice of the foreclosure under the rules, you may be able to delay the foreclosure until you receive notice. Also, if you submit your loss mitigation application 38 days or more before the foreclosure sale, this will trigger additional steps that the lender must take before proceeding with the sale. If it proceeds with the sale anyway, you can ask a court to cancel the sale, which will delay the process and give you more time to move or explore alternatives. You can also report a mortgage servicer to the Consumer Financial Protection Bureau (CFPB) if it violates these rules.
Does the FDCPA Cover Foreclosures?
People usually think of the FDCPA as a debt collection law, but it can be relevant to foreclosures in some cases. The language of the law is ambiguous, but some courts have ruled that a person or entity that tries to collect a payment on a mortgage or pursue a foreclosure can be defined as a debt collector within the meaning of the law. (Often, this will be the attorney of the foreclosing party.) On the other hand, some courts believe that the FDCPA does not cover foreclosures because collecting a debt is a different activity from enforcing a security interest. The U.S. Supreme Court ruled in 2019 that the FDCPA does not generally apply to non-judicial foreclosures. This precedent may affect how courts will view the FDCPA in relation to judicial foreclosures.
Obduskey v. McCarthy & Holthus LLP
The U.S. Supreme Court decision in Obduskey v. McCarthy & Holthus LLP held that businesses engaged in only non-judicial foreclosure proceedings are not generally “debt collectors” under the Fair Debt Collection Practices Act.
Even if the FDCPA does not cover foreclosures, debt collection laws in your state may cover foreclosures. You can consult an attorney to determine whether your state’s law may extend further than the federal law.
Asserting Your Rights Under the FDCPA
The impact of the FDCPA on foreclosures often relates to the notice requirements under the law. A foreclosing entity that meets the definition of a debt collector must provide written notice within five days of first communicating with the debtor. This notice will identify the creditor, state the amount of the debt, and tell the consumer that they have 30 days to verify the debt. As a result, if you are at risk of foreclosure, you can dispute the existence or amount of the debt within 30 days of getting the notice. Continuing collection efforts before the debt is verified violates the FDCPA. Inappropriate charges that form part of the debt also violate the FDCPA, as does a failure to provide the homeowner with a verification of the debt. Moreover, failing to provide the homeowner with the required notice violates federal law.
While identifying an FDCPA violation may not necessarily save your home, you can recover any monetary damages resulting from the violation, in addition to statutory damages up to $1,000.