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Sixth Circuit Holds Foreclosure Is Debt Collection Under the FDCPA - Glazer v. Chase Home Finance

January 23, 2013

Vincent Howard and our Ontario foreclosure defense attorneys were interested to see a recent court decision that involved a challenge to foreclosure under fair debt collection laws. Of course, foreclosure is a type of debt collection--it takes property in lieu of missed payments--but it's not the kind of debt collection that typically provokes lawsuits under the Fair Debt Collection Practices Act. In Glazer v. Chase Home Finance, however, Lawrence Glazer inherited a home that was in default due to the owner's death. After discovering that the mortgage was not properly assigned to Chase, Glazer sued Chase and its foreclosing law firm for FDCPA and Ohio violations. The district court dismissed, agreeing with the defendants that the debt collection laws did not apply, but the Sixth U.S. Circuit Court of Appeals reversed.

The loan was taken out in 2003 by Charles Klie from Coldwell Banker. Coldwell promptly assigned its rights to Fannie Mae, but this was never publicly recorded. As a result, the note was never legally assigned to Fannie Mae. It later transferred its servicing rights to JP Morgan Chase, which also required that Coldwell reassign its now nonexistent rights to the note and mortgage to Chase, which reassigned them to Fannie Mae. Chase serviced the loan for three more months, during which time Klie made timely payments. He died the next month and, with no one to make payments, the loan fell into arrears. Chase hired defendant Reimer, Arnovitz, Chernek & Jeffrey, a law firm, to bring a foreclosure lawsuit. RACJ prepared an assignment from JP Morgan--whose rights did not exist because of the original Fannie Mae reassignment--to the Chase arm that was foreclosing.

It then filed a foreclosure lawsuit, saying the original note had been lost. Glazer was named as a person with an interest in the property. He disputed the debt and asked for verification, which RACJ refused to provide. The Ohio court eventually granted a foreclosure, but then vacated its judgment and requested the original note. RACJ scheduled but then canceled a foreclosure sale, and Chase eventually dismissed the bankruptcy. During this process, Glazer sued Chase and RACJ for FDCPA and Ohio law violations, saying they falsely stated that Chase owned the rights to the mortgage; improperly scheduled a foreclosure sale; and refused to verify the debt on request. The district court dismissed the federal claims and denied Glazer leave to amend. He appealed.

The Sixth Circuit reversed this, saying Glazer should be permitted to apply the FDCPA to foreclosure. The district court was right that Chase is not a "debt collector" under the FDCPA, because it began servicing the loan while it was current. However, the allegations against RACJ should survive, the Sixth said, because its foreclosure lawsuit was debt collection under the law. The FDCPA does not define "debt collection," but the court found that its definition of "debt" encompasses a mortgage. It also defines collection broadly enough to include foreclosure activities. It doesn't expressly exclude secured debts, the court said, and indeed some sections can be read to include foreclosures. And at least two other circuits have come to the same conclusion. "There can be no serious doubt," the Sixth said, "that the ultimate purpose of foreclosure is the payment of money." Thus, it reinstated the lawsuit except for the federal allegations against Chase.

Vincent Howard and our Yorba Linda foreclosure defense lawyers strongly agree with the Sixth Circuit that there's no doubt that foreclosures are attempts to collect money. After all, the bank doesn't want to own the physical property, typically a money-loser for banks--it wants the underlying debt to be repaid. The FDCPA is more typically asserted against debt collectors trying to collect unsecured debts, for things like medical care or credit cards, which may be the source of the lower courts' disagreement. Foreclosure collection law firms working for banks may be disappointed that this case opens more liability for them, but of course, they always have the option of complying with FDCPA requests they receive. At Howard Law, P.C., our Perris foreclosure defense attorneys are pleased that Sixth Circuit residents have this tool in their arsenal against wrongful foreclosures.

If you believe your loan servicer or lender is attempting to foreclose without the legal right to do so, you should call Vincent Howard and the team at Howard Law. For a consultation, call us toll-free at 1-800-872-5925 or send us a message online.

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