The Obduskey Ruling, FDCPA and Nonjudicial Foreclosures

If this is your first visit to my website, welcome! My name is Christine Springer and I'm the founder of Desert Edge Legal Services and the author of the content on this site.

Disclaimer: I’m a paralegal, not an attorney and cannot give you legal advice. This is not meant to be legal advice, and there is no guarantee that the information in this post will work for your individual situation. Please consult with an attorney if you have questions about your individual situation.

In yesterday's post, I talked about Congress's attempts to make changes to the Fair Debt Collections Practices Act to include, among other things, law firms that conduct non-judicial foreclosures.

The article I linked yesterday from The Intercept had a quote from Justice Sotomayor about how they thought that it was very close to saying that foreclosure firms were included under FDCPA. She also said that Congress may want to modify the law to make foreclosure firms included.

The words "may have wanted" in the Court's analysis of the three factors it considered aligns with what Justice Sotomayor said. I have highlighted these words in italics at the bottom of this post. When you look at the factors they considered, it definitely seems like it was a very close decision.

And, considering that the firms send out letters saying they are debt collectors, it seems like even they knew there was going to be an FDCPA issue.

I was curious about how the Supremes reached that conclusion and read the Obduskey decision. On the one hand, it's easy to understand that the firm is being hired to coordinate the non-judicial foreclosure process, but some of the things I saw firms doing made me doubt that they were only acting on behalf of the banks.

I know there are a lot of laypersons who are curious about case law, as there's a ton of misunderstanding between what a statute says and how the meaning changes after there has been a court ruling on the statute.

The Obduskey decision was very easy to read and follow along, so don't feel like you wont understand it if you read it – and it's good to develop your own understanding of things like this instead of just reading someone else's version of it.

The opinion was written by Justice Breyer on behalf of the Court. He says right away that "In our view, the last sentence does (with its § 1692f(6) exception) place those whose "principal purpose ... is the enforcement of security interests" outside the scope of the primary "debt collector" definition, § 1692a(6), where the business is engaged in no more than the kind of security-interest enforcement at issue here—nonjudicial foreclosure proceedings. (Emphasis is Christine's)

The decision says that McCarthy first mailed Obduskey a letter that said it had been "instructed to commence foreclosure" against the property, disclosed the amount outstanding on the loan, and identified the creditor, Wells Fargo. The letter purported to provide notice "[p]ursuant to, and in compliance with," both the Fair Debt Collection Practices Act (FDCPA) and Colorado law. Obduskey responded with a letter invoking § 1692g(b) of the FDCPA, which provides that if a consumer disputes the amount of a debt, a "debt collector" must "cease collection" until it "obtains verification of the debt" and mails a copy to the debtor.

Yet, Obduskey said that McCarthy neither ceased collecting on the debt nor provided verification. Instead, the firm initiated a nonjudicial foreclosure action by filing a notice of election and demand with the county public trustee. The notice stated the amount due and advised that the public trustee would "sell [the] property for the purpose of paying the indebtedness."

Obduskey then filed a lawsuit in federal court alleging that the firm had violated the FDCPA by, among other things, failing to comply with the verification procedure. The District Court dismissed the suit on the ground that the law firm was not a "debt collector" within the meaning of the Act, so the relevant Act requirements did not apply. Obduskey v. Wells Fargo , 2016 WL 4091174, *3 (D. Colo., July 19, 2016).

Obduskey lost again, and petitioned for certiorai. The Supreme Court heard the case because of the different opinions in the Circuits.

There were three things the Court considered in their decision. First was the text of the Act itself and its limited purpose definition; second, they thought Congress may have wanted (Emphasis is Christine's – I mentioned this above) to treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes; and third, the legislative history of the FDCPA supported their decision.

I did not know that courts used this to determine intent, so this is pretty cool! The Court points out that there was a version of the FDCPA that was considered that would have included security-interest enforcers under the full coverage of the Act. That version was not the version that was passed, and so that supports their interpretation of the intent of lawmakers during the legislative process.

I was also curious about how this case law had been used in other cases, so I went over to Google Scholar and looked it up. You can see how this case was cited here (this used to be called Shepardizing, by the way), along with a snippet from the decision that cited the case and a link to that case also within Scholar.