Without financing, home ownership would likely remain out of reach for most people in this country. Few homebuyers have the means to pay the full purchase price in cash. Mortgages typically include a deed of trust granting the lender the right to foreclose on the property. The foreclosure process allows the lender to recover some or all of their investment if a borrower defaults. Most deeds of trust include a “power of sale” clause, which allows a trustee designated by the lender to sell the property without a court order. This is known as nonjudicial foreclosure. California foreclosure law protects homeowners by requiring trustees and lenders to follow a rigid process before selling a property. Federal law protects consumers from unscrupulous debt collection practices, but courts have reached differing conclusions about whether federal debt collection laws apply to nonjudicial foreclosure. The U.S. Supreme Court recently agreed to hear a case that raises this question, Obduskey v. McCarthy & Holthus LLP.The federal Fair Debt Collection Practices Act (FDCPA) prohibits “abusive, deceptive, and unfair debt collection practices” by debt collectors. 15 U.S.C. § 1692(a). It defines “debt collectors” as anyone who “collects or attempts to collect” debts owed to other people or businesses in interstate commerce, or who engages in such activities as a regular business. Id. at § 1692a(6). In addition to its prohibitions on misleading and abusive practices, the FDCPA also requires debt collectors, after contacting a consumer regarding an alleged debt, to provide them with information validating the debt. Id. at § 1692g.
California’s nonjudicial foreclosure laws also require notice and disclosures to debtors. A mortgage lender or trustee must provide notice to a borrower at least 30 days before filing a notice of default in the public record, and it cannot conduct a sale of the property for several months after that. Cal. Civ. Code §§ 2923.5, 2924. California homeowners’ associations (HOAs) can pursue nonjudicial foreclosure as a remedy for unpaid assessments, but only if the total delinquent amount is at least $1,800, or the delinquency has persisted for over 12 months. Id. at § 5730. In addition to various notice requirements, an HOA’s board must vote on the foreclosure at least 30 days before they may sell the property. Id. at § 5705.
The dispute in Obduskey arose from allegations that, among other violations, the lender failed to follow the procedures for validating the debt under § 1692g of the FDCPA. A Colorado federal court dismissed the lawsuit, finding that the lender was not a “debt collector” within the meaning of the FDCPA because it was responsible for servicing the loan before the plaintiff went into default. Obduskey v. Wells Fargo, 879 F. 3d 1216, 1219-20 (10th Cir. 2018). In other words, its responsibilities went beyond merely collecting unpaid amounts owed by the plaintiff.