Homeowner on losing side in foreclosure case
The U.S. Supreme Court on Wednesday unanimously ruled that foreclosure lawyers are not debt collectors, ending a Colorado man’s years-long effort to gut the state’s century-old public trustee foreclosure system.
As such, the attorneys representing Wells Fargo Bank in its efforts to foreclose on Dennis Obduskey’s home in Bailey are not subject to comply with a broad array of consumer protections mandated by the federal Fair Debt Collection Practices Act, such as proving the bank actually has the right to foreclose.
The 9-0 decision in Obduskey vs. McCarthy & Holthus LLP primarily keeps intact nonjudicial foreclosure processes that occur in Colorado and 32 other states.
“My interest was not screwing up the law for the entire country,” Obduskey told The Denver Post in a telephone interview shortly after the court’s opinion was released. “But I’m unfazed in my commitment to ultimately fix this problem.”
In a tightly worded 14-page opinion, Justice Stephen Breyer wrote that the court’s decision rested largely on the context of a single sentence within the Fair Debt Collection Practices Act, and the precision of a single word within it.
Breyer wrote that the lawyers looking to foreclose on Obduskey’s house would have been deemed debt collectors — largely changing the entire process of foreclosures in Colorado — if the debt-collection act didn’t already distinguish those lawyers from regular debt collectors.
“It says that … a debt collector ‘also includes’ a business, like (the foreclosure lawyers), ‘the principal purpose of which is the enforcement of security interests,’ ” Breyer wrote. “This phrase, particularly the word ‘also,’ strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition (of a debt collector). Otherwise, why add this sentence at all?”
The law firm handling the Wells Fargo foreclosure against Obduskey did only that type of work. It did not collect debts such as for credit card companies or other types of loans.
“We think Congress may well have chosen to treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes,” Breyer wrote.
Obduskey’s home was the target of multiple foreclosure attempts by Wells Fargo beginning in 2009 during the height of the nation’s economic collapse. Some of those efforts included several notices to contact his mortgage servicer hanging from his front doorknob and a number of ignored requests for proof the bank had the right to foreclose. Obduskey said those efforts, even though required by Colorado law, violated federal debt-collection laws.
Obduskey lives in Pueblo, although he still holds title to the Bailey house. He said a bankruptcy case has stopped the foreclosure, which could change with the court’s ruling.
In a concurring opinion, Justice Sonia Sotomayor called the decision a close one, and hoped Congress would fix the law if the court got it wrong.
“This is too close a case for me to feel certain that Congress recognized that this complex statute would be interpreted the way that the Court does today,” Sotomayor wrote. “Today’s opinion leaves Congress free to make clear that the FDCPA fully encompasses entities pursuing nonjudicial foreclosures and regulates security-interest enforcers like repossession agencies …”
Foreclosures have not been considered a debt collection in the strictest terms and, by extension, the lawyers representing banks were not deemed debt collectors, so they weren’t subject to any of the debt-collection act’s rules or liable to its sanctions.
Breyer warned that foreclosure lawyers, however, don’t have a license to violate the law.
“This is not to suggest that pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls,” Breyer wrote. “Enforcing a security interest does not grant an actor blanket immunity from the Act.”