A trustee is not a “debt collector,” so foreclosing a deed of trust is not subject to FDCPA’s restrictions or damages.
A federal appellate court held recently that the trustee of a residential deed of trust was not a “debt collector” under the federal Fair Debt Collection Practices Act (FDCPA), because the trustee was enforcing a security interest against the loan’s collateral, not collecting money from the borrower. Ho v. ReconTrust Co., N.A., 840 F.3d 618 (9th Cir. Oct. 19, 2016). Therefore, “actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect ‘debt’ as that term is defined by the FDCPA.”
The facts of the case aren’t unique. A lender made a residential loan secured by a deed of trust on the property. After the borrower defaulted, the foreclosure trustee mailed a notice of default to the borrower and then a notice of sale. The borrower eventually sued, alleging the trustee violated the FDCPA by misrepresenting the amount of debt owed on the notices of default and sale.
The FDCPA is a federal statute regulating “debt collectors.” A “debt collector” is someone who regularly collects or attempts to collect another creditor’s “debts, which is an “obligation…of a consumer to pay money.” Seizing on these definitions, the Ninth Circuit held that the trustee was not a “debt collector” subject to the FDCPA because it was not attempting to collect money from the borrower. The trustee was simply enforcing a lien on the loan’s collateral. “Following a trustee’s sale, the trustee collects money from the home’s purchaser, not from the original borrower. Because the money collected from a trustee’s sale is not money owed by a consumer, it isn’t ‘debt’ as defined by the FDCPA.”
If that reasoning seems a bit strained, you’re not alone. A dissenting judge argued that “there can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.” Nonetheless, the majority opinion is now the law in Washington, Oregon, and California, among other western states.
ReconTrust also reminds us of the longstanding rule that lenders aren’t liable under the FDCPA for collecting on their own loans (with some exceptions). The borrower in this case originally sued the lender in addition to the trustee, but the lender was kicked from the case in its early stages.
Although borrowers can’t now succeed in claims against the trustee under the FDCPA for alleged misstatements of the debt in a trustee’s sale, lenders and trustees should remain mindful of the variety of other laws and regulations that continue to govern the non-judicial foreclosure process.