U.S. Supreme Court rules that businesses engaged in nonjudicial foreclosure proceedings are not considered “debt collectors” under the Fair Debt Collection Practices Act
In a much-anticipated decision, the U.S. Supreme Court upheld the Tenth Circuit by holding that entities conducting nonjudicial foreclosures are not “debt collectors” under the Fair Debt Collection Practices Act, except in the limited scope of §1692f(6).
The unanimous Court reviewed the nonjudicial practices of McCarthy & Holthus’ Colorado practice and determined that enforcing a security interest was a specifically enumerated inclusion in the §1692f(6) limited purpose definition, and thus was logically excluded from the broad definition of “debt collector” under the Act.
The Court pointed out that, in a nonjudicial setting, the enforcement of the security interest through the foreclosure process usually either disallowed the collection of a deficiency from the borrower or required a separate court action after the foreclosure to establish and enforce a deficiency. As such, those who engage in nonjudicial foreclosures as their primary business are not “debt collectors” under the FDCPA.
The Court’s decision upholds the status quo for many firms in the industry that have tailored their business practices to this interpretation. Interestingly, for firms whose practice areas go beyond nonjudicial foreclosures into pursuing deficiencies, consumer collections, or other practice areas, a court would still have room, within the decision, to determine that such firms are subject to FDCPA based on these multiple practice areas.
By and large, this unanimous decision by the Court is a significant win for the industry.
As always, if you have any questions about this decision, or any other matters affecting your business, please feel free to call or email any of our seasoned attorneys via [email protected].