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Financial Services Law Insights and Observations

6th Circuit holds condo company and law firm did not act as debt collectors in non-judicial foreclosure

Courts Appellate Sixth Circuit FDCPA Debt Collection U.S. Supreme Court

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On May 4, the U.S. Court of Appeals for the Sixth Circuit held that a condominium management company, condominium association, and its law firm (collectively, “defendants”) acted as “security-interest enforcers” and not debt collectors and therefore, did not violate the FDCPA. According to the opinion, the homeowners lost their condominium to a non-judicial foreclosure after they fell behind on condominium association dues. The homeowners filed suit against the defendants alleging various violations of the FDCPA during the foreclosure process. The homeowners did not assert a violation of Section 1692f(6), which applies to security-interest enforcers. The district court dismissed the action, concluding that the homeowners failed to allege facts that the defendants did more than act as security-interest enforcers.

On appeal, the 6th Circuit agreed, citing to the U.S. Supreme Court’s opinion in Obduskey v. McCarthy & Holthus LLP, which held that parties who assist creditors with the non-judicial foreclosure of a home fall within the separate definition under Section 1692f(6) as security-interest enforcers and not the general debt collector definition (previously covered by InfoBytes here). The appellate court noted that the homeowners’ complaint did not allege the defendants’ regular business activity was debt collection. Moreover, the appellate court rejected the homeowners’ argument that the defendants recording of a lien on their condo was a step beyond enforcing a security interest. According to the court, Michigan law requires the recording of the lien in order to enforce a security-interest and therefore, the action “falls squarely within Obduskey’s central holding.”

 

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