Supreme Court Starts to Close the Door on FDCPA Protections in Foreclosure Cases
The U.S. Supreme Court recently weighed in on the Fair Debt Collection Practices Act (FDCPA), the law that protects consumers from abusive collection practices. The Court had to determine whether collectors and their attorneys that engage in foreclosures are covered by the act. The Court unfortunately limited consumer protections, but the applicability in Florida may be negligible.
Foreclosures and FDCPA Coverage
Foreclosures have presented an interesting legal problem for courts when it comes to the FDCPA. The law is only supposed to apply to debt collectors (including attorneys) whose principal business is debt collection. However, a home foreclosure is technically not the collection of money, but the repossession (and subsequent sale) of property. In fact, the FDCPA itself excludes repossessions (enforcement of security interests) from the FDCPA.
However, foreclosures are a result of nonpayment on a promissory note–a debt. The foreclosure is the way that banks collect on that debt, putting foreclosures in the realm of the FDCPA. Furthermore, many foreclosures include and can end up with money judgement in the form of deficiencies.
A deficiency is where the foreclosed property is worth less than what is owed. The balance can then be collected just as if it were a pure money judgment. This further strengthens the argument that foreclosures are debt collection which should be covered by the FDCPA, and not simply repossessions.
Supreme Court Weighs In
The U.S. Supreme Court recently determined that some foreclosures were simply repossessions, and thus, were not covered by the FDCPA (meaning consumers don’t get the protections of the FDCPA in foreclosure actions). This would appear to give banks, servicers, and their attorneys, free reign to say or do anything that they want, no matter how abusive, while foreclosing.
The good news for Floridians is that the case only dealt with nonjudicial foreclosures–foreclosures that happen without lawsuits or judges, which is allowed in many states. In many of those states, a lender or attorney can foreclose, but cannot obtain a monetary deficiency judgment (at least, not without filing an action in court).
But Florida is a strictly judicial foreclosure state. To foreclose a lender or attorney has to file a lawsuit and get a judge to enter a foreclosure after the homeowner asserts defenses, and gets (at least some measure of) due process.
The Supreme Court did not deal with whether the FDCPA applies in states like Florida, where court action is needed. This means that the FDCPA would, for now, apply to florida foreclosures. However, many law firms in Florida will surely try to expand the reach of this case, and it may set a precedent for future FDCPA foreclosure cases in Florida that go before federal courts.
Let an Attorney Help You Today
Are you seeking professional help or do you have questions about foreclosure or unfair debt collection practices? Contact Jacobs Legal to speak with one of our Miami consumer rights attorneys today.