The U.S. Supreme Court ruled unanimously on March 20, 2019 in Obduskey v. McCarthy & Holthus LLP that a law firm hired to pursue a nonjudicial foreclosure under Colorado law was not a debt collector under the Fair Debt Collection Practices Act (FDCPA). In a nonjudicial foreclosure, notice to the parties and sale of the property occur outside court supervision. As summarized in a recent JacksCampBlog post by James N. Markels, this case involved a homeowner who tried to fight his nonjudicial foreclosure. The homeowner alleged that once he received a foreclosure notice from the law firm, he invoked protection under the FDCPA, thus requiring the law firm to cease collection until it obtained verification of the debt and mailed a copy to the debtor. Instead, the Court ruled that the law firm was not a debt collector, by definition, since it only pursues nonjudicial foreclosures. The Court primarily based its decision on the language in the FDCPA’s debt collector definitions, such that, in the Court’s view, the debt-collector-related prohibitions of the FDCPA (with limited exceptions) do not apply to those who are engaged in “no more than security-interest enforcement”.
The Obduskey decision gives law firms and lenders additional protection in nonjudicial foreclosure states. As a result of the decision, in these jurisdictions, borrowers will no longer be able to file lawsuits under the FDCPA against law firms pursuing foreclosures. The end result is a reduction in time and cost to reach final foreclosure. The property in question in Obduskey was a single family home with a mortgage held by Wells Fargo. The court did not address nonjudicial foreclosures and the FDCPA in the context of unpaid community association assessments in properties such as condominium units. However, it would be consistent with the Court’s ruling that law firms pursuing unpaid assessments in nonjudicial foreclosure states would enjoy the same protections afforded the law firm in Obduskey. Likewise, associations or boards pursuing unpaid assessments in these jurisdictions would likely enjoy the similar benefits of a more streamlined foreclosure process.
As a final note, it should be mentioned that the Court made clear that nothing in their opinion is to suggest that nonjudicial foreclosure is a license to conduct abusive debt collection practices, such as repetitive nighttime phone calls.
This alert is not intended to contain legal advice or to be an exhaustive review. If you have any questions about foreclosure of property, please contact David Rahnis at Jackson & Campbell, P.C.