10th Circuit Rules FDCPA Does Not Apply to Non-Judicial Foreclosure Proceedings

The Tenth Circuit Court of Appeals recently held that a non-debt collector defendant seeking a non-judicial foreclosure was not liable to a borrower/plaintiff for alleged violations of the Fair Debt Collection Practices Act (FDCPA).  Acknowledging a circuit split on the question of whether non-judicial foreclosure proceedings are covered by the FDCPA, the court reasoned that, at least for the Tenth Circuit, under a plain language interpretation, entities engaged in non-judicial foreclosure actions are not debt collectors under the FDCPA.

In 2007, the plaintiff in the case took out a home loan from a lender.  The loan was secured by his property and serviced by a large bank.  Plaintiff defaulted on the loan in 2009.  In 2014, the bank hired a lawyer to pursue non-judicial foreclosure for it as a creditor.  The plaintiff disputed the debt in writing but the lawyer for the bank did not respond.  Instead, in 2015, a foreclosure action was filed.  The plaintiff sued the servicer/bank and the lawyer for the bank, claiming, inter alia, a violation of the FDCPA.  The district court granted motions to dismiss all claims filed by the bank and its lawyer, and the Tenth Circuit affirmed.

To establish an FDCPA violation, the plaintiff must show that (1) a debt collector (2) attempted to collect a debt and (3) did so in violation of some provision of the FDCPA.  Here, the court found that the bank was not a debt collector due to timing: it began servicing the plaintiff’s loan before the default.  The FDCPA does not apply to a servicer attempting to collect a debt that was not in default at the time the debt was obtained.

The lawyer was not a debt collector either, because he pursued non-judicial foreclosure against the plaintiff, not a judicial foreclosure.  The plain language of the FDCPA, in the court’s view, indicates that FDCPA liability only attaches when an entity is attempting to collect money.  Enforcing a security interest is not the same as an attempt to collect money, because it does not create an obligation on the borrower to pay money.

While other courts have held that the FDCPA does apply to non-judicial foreclosure, with one circuit court rationalizing that the ultimate aim of a foreclosure action is the payment of money to pay down an outstanding debt, the Tenth Circuit took a different view, relying on the ultimate difference between judicial and non-judicial foreclosure proceedings.  Non-judicial foreclosure sales only allow a party seeking the foreclosure to obtain no more than the proceeds from a sale of foreclosed property.  Judicial foreclosures, by contrast, may result in a deficiency judgment.