On October 19, 2016, the U.S. Court of Appeals for the Ninth Circuit held that a trustee seeking a non-judicial foreclosure on a deed of trust could not be classified as a debt collector under the Fair Debt Collection Practices Act (FDCPA).
In the case of Vien-Phuong Thi Ho v. Recontrust Co., N.A., the plaintiff alleged that while initiating a California non-judicial foreclosure, the defendant trustee sent her a notice of default and a notice of sale that misrepresented the debt she owed. She alleged that the misrepresentation was a violation of the FDCPA. In addition, the plaintiff sought to rescind her mortgage transaction under the Truth in Lending Act (TILA).
The trial court dismissed both the FDCPA and TILA claims and the plaintiff appealed, claiming that the foreclosure trustee was a debt collector under the FDCPA because the notices of default and sale were attempts to collect a debt and the foreclosure was a threat unless her debt was paid.
In its decision, the Ninth Circuit upheld the lower court’s ruling, finding that “actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect ‘debt’ as that term is defined by the FDCPA.” (The FDCPA defines “debt” as an “obligation of a consumer to pay money.”) The Ninth Circuit held that the foreclosure notices were not an attempt to collect money, but instead were the enforcement of a security interest.
The Ninth Circuit’s ruling creates a potential circuit split with the Fourth and Sixth Circuits, which found that actions to enforce a security interest are subject to the FDCPA. However, those cases did not involve non-judicial foreclosures.
The Ninth Circuit also vacated and remanded the dismissal of the plaintiff’s TILA claim to the trial court for reconsideration.
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