Point of View: FC Lawyers Are Subject To FDCPA in 4th Circuit
Mr. Hutchens and Ms. Miranda are from the law firm of Hutchens, Senter and Britton. This article is adapted from one that originally appeared in the January 2007 USFN e-update. USFN - America's Mortgage Banking Attorneys, is a resource network serving the mortgage industry. Formerly known as the U.S. Foreclosure Network, it is the largest not-for-profit association of law firms and trustee companies in the nation.
The Fourth Circuit (covering North Carolina, South Carolina, Virginia, West Virginia and Maryland) recently held that substitute trustees, including attorneys acting in connection with a foreclosure, can be debt collectors under the Fair Debt Collection Practices Act, and are therefore potentially liable for FDCPA violations.
In Wilson v. Draper & Goldberg, 443 F.3d 376 (4th Circuit 2006), the borrower sued a law firm and the individual firm member who had initiated foreclosure proceedings on the lender's behalf, specifically alleging that the law firm failed to verify the debt, continued collection efforts after the debt was disputed, and communicated directly with the borrower when the law firm had been advised that the borrower was represented by counsel.
The defendants moved for summary judgment alleging that the FDCPA did not apply to the firm or its members as they were acting as substitute trustees foreclosing on a deed of trust and any actions taken in connection with the foreclosure could not be challenged under the act. The District Court agreed, concluding that substitute trustees foreclosing on a deed of trust could not be "debt collectors" under the act. The Court of Appeals reversed, and found that defendants' initial demand letter and subsequent reinstatement quote to the borrower were attempts to collect the debt on behalf of the lender.
Further, the Court opined that the defendants were not excluded from the definition of "debt collectors" just because they were acting as the trustees foreclosing pursuant to a deed of trust, nor was it relevant that defendants were attorneys, as attorneys can be debt collectors while conducting litigation. (Wilson, 443 F.3d at 378.) The Court noted that its decision was not meant to bring all foreclosure law firms into the gambit of the FDCPA, only those that "regularly" engage in consumer debt collection activity. (Id. at 378.) The Court of Appeals remanded the matter to the United States District Court in Maryland for trial, currently scheduled in March 2007.
The Wilson decision is a potential landmine for foreclosure attorneys who fail to comply with the strict liability standards of the FDCPA. Wilson sets the precedent that a firm that initiates foreclosure proceedings on a consistent basis must identify itself as a debt collector on its initial communication with the borrower and within five days thereafter provide the validation of debt notice required by 15 U.S.C. §1692(g). If the borrower requests verification of the debt or otherwise disputes the debt within 30 days of receiving the validation notice, then the FDCPA provides that all collection activities and litigation must cease until the requested verification is obtained by the debt collector and mailed to the borrower. Further, it should be noted that a borrower's dispute does not have to be in writing. Turner v. Shenandoah Legal Group PC, 2006 WL 1685698 (E.D.Va. June 12, 2006). The District Court in Turner held that consumers may invoke their rights by either oral or written communications to a debt collector, although the Court conceded that consumer protections triggered by an oral dispute may be fewer than those made in writing.
Bottom line, law firms should train their staff to identify debt validation requests whether oral or written and halt foreclosure proceedings until the servicer has been notified and a response has been provided to the borrower (c) 2007 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com