Balancing the Scales of Justice for Pro Se Homeowners

Two Issues in Flux in Regards to Foreclosure – Assignment of Deed of Trust and Applicability of FDPCA in Foreclosures – Part Two

Posted by on Jan 23, 2012

The other issue in flux right now is whether the Federal Debt Protection Act (FDPCA) is applicable to foreclosures.  Right now in the 9th Circuit there is a growing chasm of decisions, leaving the final determination of whether it will apply to your foreclosure squarely with the judge presiding over your case, at least until the 9th Circuit comes out with a ruling.  As you read some of the rulings that have come out over the last two to three years it becomes readily apparent:

  • Not everyone agrees with the definition of a “debt collector”.  The parties involved are a determining factor; if it is the original lender/creditor – FDPCA will not apply; if it is one of those empty REMICS or a Servicer– give it a shot because they are 3rd party “assigns”, not an originator and/or successor. 
  • If the debt is assigned to a 3rd party while it is in default, the 3rd party cannot claim exemption as a debt collector.  USC 15 § 162a(6)(F) ii, iii is clear that FDPCA exemption is allowed “so long as the debt was not in default at the time it was assigned”.   So if the Assignment of Deed of Trust is done after the Notice of Default doesn’t the land record show the new beneficiary receiving the Note while it was in default?  And wouldn’t the only purpose of that assignment be to collect on the debt?  Also, what REMIC extends credit? 

Read the cases below because they give an excellent understanding of how the judges are viewing how parties qualify as a debt collector, which is mandatory to state a claim under FDPCA.

[private Monthly|annual|advocate]

Those courts that find that the foreclosure is not actionable under the FDPCA have determined that the purpose of the foreclosure is to foreclose the interest in the property, not to collect the debt itself.  Really?  Read your Notice of Default, it specifically tells you how much MONEY you have to pay on your DEBT to stop the foreclosure AND it gives you a Miranda warning that the notice is being sent by a debt collector.  So if the foreclosure is not intended to collect on the debt, at what time does the loan cease to be a debt?  Is it at the time of the Notice of Default?  In California the property owner has up to five days before the Trustee Sale to pay the arrears and bring the loan current; and has until the MOMENT of the Trustee sale to pay off the loan to stop the Trustee Sale.  When the property is sold the proceeds go to satisfy the debt.  I can’t help but wonder what kind of kool aid some of these judges are drinking.

Those courts that find the foreclosure IS actionable under the FDPCA are very clear that it is not the documents themselves (i.e. Notice of Default, Trustee Sale) but rather the deceptive information contained in those documents or the acitivies of the parties involved – such as servicer calling you after you have told them you have an attorney or caling you even though you are under the protection of an automatic stay through bankruptcy.  For example, in my Notice of Default the “beneficiary” is listed as the Morgan Stanley Loan Trust – while the Trustee Deed Upon Sale names a different Trust, the Morgan Stanley Capital 1 Trust.   While there is a large body of evidence that the Morgan Stanley Loan Trust exists by Quit Claim Deeds from the Morgan Stanley Trust to the Morgan Stanley Capital 1 Trust and assignments between the two trusts, the reality is that the Morgan Stanley Loan Trust DOES NOT EXIST.  It is a “placeholder” name that the bank used until it could figure out which trust was suppose to have the Note!?!  By law ONLY the beneficiary can claim a default; if they didn’t know who the beneficiary was, how could they claim a default?  IMHO, this is actionable under FDPCA because the servicer and trustee lied on the Notice of Default to start the process – and the FDPCA says no lies allowed.

As of today, January 20, 2012, the 9th circuit has yet to rule on whether a foreclosure process is actionable under FDPCA so right now all the rulings are from lower courts; though this issue has been heard by some state Courts of Appeals – which found that foreclosure IS actionable under FDPCA.  And this brings me full circle to the “in flux”.  Right now it depends on which courts you are heard by.  The good news is that you can use these arguments in any court and attempt to persuade the judge that is hearing you; hopefully you can engage the judge in a thoughtful discourse of asking the judge – if the proceeds of the sale goes to satisfy the debt, isn’t the foreclosure all about collecting on the debt?

Below is a listing of cases in regards to this issue.  (And remember, SHEPARDIZE them before using them as some are still winding their way through the court systems).

CASES that say NO Foreclosures are NOT actionable under FDPCA –

Hulse v Ocwen Federal bank, FSB, 195, F.Supp.2d 1188 (D.Or. 2002) in Hulse, Ocwen is the originator of the loan and therefore is not subject to FDPCA.  One would think this line of reasoning will not apply to those cases where it is a REMIC trust who is a 3rd party, not the originator.

Landayan v.  Washington Mutual Bank, 2009 WL 3047238, at *3 (N.D. Cal. Sept.18, 2009)

Hanaway v. JPMorgan Chase Bank, 2011 WL 672559, at *4 (C.D. Cal. Feb. 15, 2011) (because “a transfer in interest is the aim of a foreclosure, and not a collection of debt, the foreclosure proceeding  is not a debt collection action under the FDCPA.”)

 Aniel v. T.D. Serv. Co., 2010 WL 3154087, at *1 (N.D. Cal. Aug. 9, 2010) (“allegations relating to the FDCPA claim relate to foreclosure proceedings and courts throughout this circuit have concluded that foreclosure does not constitute ‘debt collection’ under the FDCPA”)

 Deissner v. Mortgaeg Elec. Regis. Sys.,  618 F.Supp. 2d 1184,1189 (D. Ariz. 2009)  (“activity of foreclosing on [a] property pursuant to a deed of trust is not collection of a debt within the meaning of the FDCPA.”), affd, 2010 WL 2464899 (9th Cir. Jun.17, 2010) (quotations and footnote omitted).

 CASES that say YES Foreclosures ARE actionable under FDPCA –

Lettenmaier v. Federal Home Loan Mortgage, Case No. CV-11-156-HZ In Lattenmaier the Court found the Trustee, NWTS was in fact a debt collector under FDPCA § 1692f(6) and therefore refused to dismiss the FDPCA claim.  Subsequently the claim was dismissed but for other reasons.

Armacost v. HSBC Bank USA, Case No. 10-CV-274-EJL-LMB – In Armacost v. HSBC Bank USA, Case No. 10-CV-274-EJL-LMB  the Judge sought the outside guidance on the definition of “debt collector” in the FDPCA.   In response to the report that was submitted (See Case 1:10 –cv-00274-EJL –LMB Document 19 Filed 02/09/11), the Court found that parties attempting to enforce a security interest with no present right to do so, were found to be actionable under FDPCA § 1692f (6).   

Katz v. Aurora Loan Services, LLC 2012 WL 78399 –  In this case the Court found that Aurora was a debt collector as they received assignment of the Note two days after the Notice of Default had been filed.  While ultimately the complaint was dismissed because the Plaintiff’s failed to “allege specific facts” they overcame the hurdle of having the foreclosing entity recognized as a debt collector whose activities were actionable under FDPCA and the Plaintiffs have leave to amend their complaint within 21 days;  so here is to hoping Katz goes back at it with specific facts!  (This just released last week and is only available through Westlaw at this time)

 State of California Court of Appeals that say YES foreclosures ARE actionable under FDPCA

Kaltenbach v. Richards, 464 F.3d 524, 528–29 (5th Cir.2006) (“We therefore hold that a party who satisfies § 1692a(6)’s general definition of a ‘debt collector’ is a debt collector for the purposes of the entire FDCPA even when enforcing security interests.”)

Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 376 (4th Cir.2006) (“Wilson’s ‘debt’ remained a ‘debt’ even after foreclosure proceedings commenced.”)

Piper v. Portnoff Law Assocs., 396 F.3d 227, 234 (3d Cir.2005) (“The fact that the [Pennsylvania Municipal Claims and Tax Liens Act] provided a lien to secure the Pipers’ debt does not change its character as a debt or turn PLA’s communications to the Pipers into something other than an effort to collect that debt.”)

Romea v. Heiberger & Assocs., 163 F.3d 111, 116 (2d Cir.1998) (concluding that an eviction notice required by statute could also be an attempt to collect a debt)

CASES Discussing the Split

Allen v. United Fin. Mortg. Corp. No 09-2507 SC, 2010 WL 1135787, at *6 (N.D. Cal. Mar. 22, 2010) (discussing the split between courts as to whether FDPCA applies to foreclosure actions; noting that rule in Hulse had been widely adopted by the district courts in the Ninth Circuit, but further noting that most decisions had failed to discuss contrary Fourth and Fifth Circuit cases; court found reasoning in those circuit cases compelling)

              In Allen the Fourth Circuit Court disagreed with the premise that the original debt created by the note ceased to be a debt once foreclosure proceedings begin. Id at 376.  Rather the debt remained a “debt even after foreclosure proceedings commenced” and “surrounding foreclosure proceeding were attempts to collect the debt.” Id. (Indicating that a “foreclosure is a method of collecting a debt by acquiring and selling secure property to satisfy a debt”) (internal quotation omitted). 

Maynard v. Cannot, P.C., 650 F. Supp. 2d 1138, 1141 (D. Utah 2008) (“cases around the country appear to be split over the application of the FDCPA to mortgage foreclosure actions”).

Jara v. Aurora Loan Servs., No. C 11–00419 LB, 2011 WL 6217308, at 4–5 (N.D.Cal. Dec.14, 2011) (questioning the categorical rule that foreclosure pursuant to the deed of trust does not constitute “debt collection”). [/private]

For a more in-depth analysis of the FDPCA and these cases, see our “”Considering the FDPCA in your Foreclosure Fight with Cases for Consideration” due out February 3, 2012.

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