Foreclosure trustee not bound by FDCPA

Florida residents considering filing for bankruptcy may be interested in learning about a recent ruling the Ninth Circuit Court of Appeals handed down. A foreclosure trustee and others were sued by a borrower who asserted that recording a notice of default and other documents required by law was a violation of the FDCPA, or Fair Debt Collection Practices Act, because it misrepresented the amount she owed on the mortgage loan. The Ninth Circuit affirmed the ruling the district court made that granted the trustee’s petition to dismiss the suit.

According to the FDCPA, a debt refers to a consumer’s obligation or supposed liability to pay money resulting from a transaction in which the property, money, services or insurance that are the subject of the transaction are mainly for family, household or personal uses. The Ninth Circuit determined that notices of default and sale from trustees are not demands for payment of money. Instead, they are documents that are required by law to be recorded before a trustee is able to exercise the power of sale.

The majority opinion in the ruling stated that even though default notices may encourage borrowers to repay all or portions of their mortgage loans that are in arrears, the inducements are related not to the debt but to the risk of foreclosure and the underlying lien. One ruling judge used the analogy of while the fear of having a vehicle impounded may compel someone to pay for his or her delinquent parking tickets, it does not turn a tow truck driver into a debt collector.

Individuals who have substantial debts may consult with a bankruptcy lawyer who may advise them about what type of bankruptcy would be appropriate for their circumstances. This may include a chapter 13 bankruptcy, which can enable those who make regular incomes to create manageable payment plans to reduce interest payments and stop harassment by creditors.