Banking and Finance Law Daily ‘Collection of the debt’ under FDCPA includes Michigan non-judicial foreclosure activities
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Monday, January 14, 2019

‘Collection of the debt’ under FDCPA includes Michigan non-judicial foreclosure activities

By Nicole D. Prysby, J.D.

A Michigan law firm, acting as a debt collector, should have stopped foreclosure proceedings when it received the debtor’s dispute letter. The subsequent posting and publishing of a notice of sale violated the FDCPA.

"Collection of the debt" under the Fair Debt Collection Practices Act (FDCPA) includes any activities that attempt to satisfy the essential statutorily required elements of Michigan’s non-judicial foreclosure law, held the U.S. Court of Appeals for the Sixth Circuit. In addition, the FDCPA directive to "cease collection of the debt" after receipt of a dispute letter requires a debt collector to intervene and stop the actions of its agents and/or third parties that the debt collector put into motion prior to receiving the dispute letter. Therefore, a debt collector that receives a dispute letter cannot allow the essential statutory elements of a Michigan foreclosure (a sheriff’s sale, home notice posting, or newspaper advertisements) to proceed. Even if the debt collector itself is not posting/publishing the notices or implementing the sale, the actions taken are due to its direction and are covered by the FDCPA’s requirement to cease collection of the debt (Scott v. Trott Law, P.C., Jan. 11, 2019, Batchelder, A.).

Background. A mortgage holder retained a law firm as a debt collector to manage foreclosure proceedings due to a Michigan debtor’s nonpayment. On Sept. 20, 2016, the debt collector sent a letter to the debtor, informing him that the mortgage holder intended to foreclose. Michigan law allows for non-judicial mortgage foreclosures and requires the notice of sale to be posted on the property and printed in the local newspaper for four consecutive weeks. On October 5, the debt collector took three actions: (1) arranged for a sheriff’s sale of the property with an auction date of November 8, (2) contacted the local newspaper to arrange for publication of the sale notice for October 7, 14, 21, and 28 and for notice of the sale to be posted on the property, and (3) mailed a copy of the notice of sale to the debtor. On October 8, the debtor sent a dispute letter to the debt collector disputing the validity of the debt. The debt collector claimed that after receiving the dispute letter it ceased collection of the debt and contacted the mortgage holder to confirm the debt’s validity. The notice of sale, however, was posted on the premises on October 14 and published in the newspaper on October 14, 21, and 28.

The debtor brought a complaint against the debt collector, alleging violations of the FDCPA. The district court granted summary judgment to the debt collector, holding that as a matter of law, the FDCPA did not require that the debt collector verify the debt and that it had "cease[d] collection of the debt" pursuant to the statute because the debt collector itself performed no more activity. The debtor appealed.

Requirements when debt collector must "cease collection of the debt." The Sixth Circuit concluded that the district court erred. As a matter of law, the statutory language of the FDCPA to "cease collection of the debt" required the debt collector to intervene and stop the actions of its agents and/or third parties that it put into motion prior to receiving the dispute letter. The debtor argued that because the newspaper advertisement, posted notice, and sheriff’s sale are necessary to satisfy the Michigan non-judicial mortgage foreclosure statute, they must be construed to be continued collection activity under the FDCPA. The court agreed, and found that after receiving the dispute letter, the debt collector was required to stop the subsequent newspaper publications from appearing, stop the home posting from occurring, and stop the sheriff’s sale from taking place. The debt collector claimed that it personally took no actions towards debt collection after receiving the dispute letter on October 11. But the court rejected such a limited reading of the FDCPA. The phrase "collection of the debt" must be defined broadly enough to, at a minimum, include any activities that attempt to satisfy the essential statutorily required elements of Michigan’s non-judicial foreclosure law. The debt collector cannot allow the essential statutory elements of a Michigan foreclosure to proceed after receiving a timely dispute letter until it obtains sufficient verification of the debt. After receiving the dispute letter, the debt collector did not cancel the sheriff’s sale, or the home notice posting, or the three remaining newspaper advertisements. Failure to stop those activities violated the FDCPA.

The debtor also argued that the debt collector’s failure to communicate with him violated the FDCPA, but the court rejected that argument. Nothing in the FDCPA requires extraneous communications between a debt collector and a debtor. The court also rejected the debtor’s argument that the debt collector’s response in opposition to the debtor’s motion for temporary injunction should be considered continued debt collection activity under the FDCPA.

Discovery issues. The debtor argued that the district court erred in grating summary judgment because there were several outstanding discovery motions. The court rejected that argument because most of the motions were presented after the expiration of the discovery period and the debtor presented no evidence supporting his allegation that the debt collector refused to comply with discovery.

The case is No. 18-1051.

Attorneys: Jan Jeffrey Rubinstein (The Rubinstein Law Firm) for Kevin Scott. Richard Arthur Welke (Trott & Trott) for Trott Law, PC.

Companies: Trott Law, PC

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