Supreme Court finds that foreclosure firm engaging in non-judicial foreclosure proceedings is not considered a debt collector under the FDCPA.

In Obduskey v. McCarthy & Holthus LLP, No. 17-1307 (Sup. Ct. Mar. 20, 2019), the Supreme Court ruled unanimously that non-judicial foreclosure actions required by state law are not generally considered debt collection, and therefore are not subject to regulation under the FDCPA. The majority opinion, written by Justice Breyer, held that the firm’s foreclosure activities to enforce a valid mortgage security interest neither fell within the purview of section 1692f(6), which provides a limited purpose definition of “debt collector”, nor within the general definition of “debt collector” in section 1692a(6).  Specifically, the Court held that because  section 1692f(6) does provide that under limited circumstances an enforcer of a security instrument may be considered a “debt collector”, i.e., when there is no right or intention to possess the property or the property is exempt by law for dispossession, Congress did not intend for such entities to also fall within the general definition of “debt collector” in section 1692a(6). In so holding, the Court considered the text of the FDCPA itself and the legislative history of the Act, and noted Congress had specifically carved-out enforcement of security instruments from debt collection. The Court also noted that Congress may have chosen to treat security-interest enforcement differently in order to “avoid conflicts with state law non-judicial foreclosure schemes.”   In his opinion, Justice Breyer was careful, however, to note that abusive practices not authorized by state law could still be covered by the FDCPA. Based on this ruling, foreclosure firms can now send valid pre-foreclosure notices  and engage in other non-judicial foreclosure activities in accordance with state law without fear of being subjected to FDCPA liability.