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Financial Services Law Insights and Observations

9th Circuit: Judicial foreclosure not debt collection under FDCPA

Courts Appellate Ninth Circuit FDCPA Foreclosure Debt Collection


On June 30, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of an FDCPA action, concluding that the FDCPA does not apply when a creditor is enforcing a security interest through a foreclosure, but is not seeking a deficiency judgment. According to the opinion, the plaintiff filed an action against Fannie Mae, Fannie Mae’s loan servicer, the law firm that represented Fannie Mae in the foreclosure proceeding, and the firm’s attorneys (collectively, “defendants”) for, among other things, violating the FDCPA when seeking to foreclose on his residential property. The district court dismissed the action, concluding that the FDCPA did not apply because the defendants had not engaged in any debt collection behavior by initiating the judicial foreclosure. In 2018, the 9th Circuit affirmed the dismissal, but subsequently ordered a supplemental briefing based on the U.S. Supreme Court’s intervening decision in Obduskey v. McCarthy & Holthus LLP (which held that law firms performing nonjudicial foreclosures are not “debt collectors” under the FDCPA, covered by InfoBytes here).

After the supplemental briefing, the appellate court affirmed the district court’s dismissal of the action. The appellate court rejected the plaintiff’s argument that the letter sent by the defendants when initiating the judicial foreclosure, which included monetary amounts owed, amounted to debt collection activity under the FDCPA. The appellate court noted that the defendants were merely fulfilling a procedural requirement (that has since been amended) of Oregon foreclosure law, and “in no event would a money award have been enforceable against [the plaintiff],” because of Oregon’s anti-deficiency judgment law. Thus, the appellate court concluded that a judicial foreclosure is not considered a debt collection activity when it does not “include a request for a deficiency judgment or some other effort to recover the remaining debt,” and therefore, the district court properly dismissed the action.

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