Recently, the U.S. Court of Appeals for the Sixth Circuit affirmed the dismissal of a lawsuit brought against a foreclosure firm—Reimer, Arnovitz, Chernek & Jeffrey (the Reimer firm)—under the Fair Debt Collection Practices Act (FDCPA). The Sixth Circuit held that the law firm's pursuit of a post-foreclosure eviction action did not violate the FDCPA. The court found that after a debt has been extinguished in a foreclosure sale, "there no longer exists a debt to enforce, and any post-foreclosure activity cannot be considered debt collection."

In August 2014, the plaintiff defaulted on her mortgage loan and filed for bankruptcy. As a result, the plaintiff's lender hired the Reimer firm to foreclose on her home, and in February 2015, the firm initiated judicial foreclosure proceedings in an Ohio state court. In August 2015, the state court found that the plaintiff owed more than $116,000 on her mortgage but that the debt had been discharged through her bankruptcy proceeding. The state court ordered the plaintiff's home to be sold at auction, with proceeds to go to the lender and a writ of possession to be issued to the purchaser. The plaintiff's lender purchased the property at auction.

In September 2015, the Reimer firm sent the plaintiff a HUD-mandated "Notice to Occupant of Pending Acquisition," which notified the plaintiff that her home would potentially be conveyed to HUD following foreclosure (the HUD letter). In the HUD letter, however, the Reimer firm did not identify itself as a debt collector or disclose that any information provided in response would be used for the purpose of debt collection.

Following foreclosure, the Reimer firm sent the plaintiff a notice to vacate her home. At the plaintiff's request, the Ohio state court stayed execution of the writ of possession for 90 days. Nevertheless, the Reimer firm pursued the eviction action in municipal court. However, the municipal court eventually dismissed the eviction proceeding because, in light of the state court's stay of execution, the court reasoned it had no jurisdiction to hear the case.

While the foreclosure battle was ongoing, the lender "continued in its efforts to collect [the] debt that it claimed survived" the foreclosure. To that end, the lender issued a 1099-A and additional mortgage statements, which alleged that the plaintiff remained personally liable for large portions of the discharged debt. The Reimer firm was not involved in these collection efforts.

In a lawsuit filed in an Ohio federal district court, the plaintiff claimed that the Reimer firm's conduct violated the FDCPA. Specifically, the plaintiff alleged that the firm violated Sections 806, 807, and 808 of the FDCPA—15 U.S.C. §§ 1692d, 1692e, and 1692f—when it filed the eviction action before the state court's stay of execution expired. The plaintiff also alleged that the HUD letter violated Section 807(11) of the FDCPA, 15 U.S.C. § 1692e(11), because the Reimer firm failed to identify itself as a debt collector. Lastly, for FDCPA liability purposes, the plaintiff alleged that her lender's attempt to collect a deficiency should be imputed to the Reimer firm based on the agency principles surrounding the attorney-client relationship.

The district court dismissed the plaintiff's complaint and the Sixth Circuit affirmed. According to the Sixth Circuit, "paramount to the application of the FDCPA" is that the Reimer firm's activities have a "connection with the collection of any debt" before liability may attach. Finding that the plaintiff's complaint only challenged the Reimer firm's behavior "as it related to the eviction proceedings, all of which happened after the foreclosure action had been completed," (emphasis in original), the Sixth Circuit found it "difficult to disagree" with district courts and held that "the FDCPA does not apply to post-foreclosure eviction proceedings."

The Sixth Circuit reached this holding because "at the point of eviction, the debt-collection process has ended and the plaintiff in an eviction action is seeking possession of the property rather than monetary damages." The court distinguished this case from its line of cases holding that "foreclosure is debt collection under the FDCPA" because the plaintiff's complaint did not raise issues with the Reimer firm's conduct during the course of foreclosure—only during eviction. The Sixth Circuit said it found no distinction between judicial and non-judicial foreclosures because the plaintiff's home was already sold at the time the Reimer firm attempted to evict her.

The Sixth Circuit also rejected the plaintiff's arguments that the Reimer firm should be liable for sending the HUD letter and for her lender's alleged attempt to collect a deficiency. The plaintiff argued that the Reimer firm's motive in sending the letter was "indirectly an attempt to collect a debt" so that its client, the lender, could receive payment by transferring ownership of the home to HUD. The Sixth Circuit summarily rejected that argument, holding that the plaintiff's argument "stretch[ed] the bounds of the FDCPA" because, assuming her allegations were true, the HUD letter was sent to induce payment from HUD—not from her. Lastly, the Sixth Circuit rejected the plaintiff's argument that the Reimer firm should be liable for her lender's behavior because "[w]hile it is common practice to impute the actions of counsel to the parties they represent, the reverse has never been the case."

Attorneys in Ballard Spahr's Consumer Financial Services Group regularly advise clients on compliance with the FDCPA and state debt-collection laws and defend clients in FDCPA lawsuits and enforcement matters. The group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.


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