Page 9 - John Hundley 2019

Mortgage Law Roundup

Sharp Thinking

No. 167 Perspectives on Developments in the Law from Sharp-Hundley, P.C. April 2019

Some Foreclosure Firms Are Not

Debt Collectors, High Court Says

By John T. Hundley, 618-242-0200, john@sharp-hundley.com

A law firm or other business engaged in no more than nonjudicial foreclosure proceedings is not a
“debt collector” under the federal Fair Debt Collection Practices Act (15 U.S.C. §§ 1692 et seq.)
(FDCPA), except for the limited purpose of 15 U.S.C. § 1692f(6).

So held a unanimous U.S. Supreme Court last month. Obduskey v. McCarthy & Holthus LLP, __
U.S. __, 139 S.Ct. 1029 (2019).

The case raises more questions than it answers, at least for Illinois practitioners. It arose under a
Colorado statute significantly different than Illinois’ mortgage foreclosure law. Under the Colorado
law, McCarthy & Holthus had the power to engage in foreclosure proceedings largely out-of-court,
and no deficiency judgment would result. The high court said about half of the states have such a
procedure.
The case turned on the language of § 1692a(6) defining “debt collectors.” That section says that
“[f]or the purpose of section 1692f(6)” a debt collector “also includes any person . . . in any business
the principal purpose of which is the enforcement of security interests.” The court reasoned that
persons within that proviso were not within the original broad definition of “debt collector”, or the
proviso would be surplusage.
The defendant was not charged with violating § 1692f(6), but with other provisions of the statute.

So what does Obduskey mean for Illinois? It is hard to say.
First, the decision carefully states that it is dealing only with nonjudicial foreclosures. Judicial
foreclosures can result in personal deficiency judgments, so arguably creditors’ attorneys there are
seeking more than “the enforcement of security interests.”
Second, the court noted that it did not “suggest that pursuing nonjudicial foreclosure is a license
to engage in abusive debt collection practices like repetitive nighttime phone calls.” It thus implied
that the protection Obduskey affords may be lost, a point stressed by Justice Sotomayor in
concurrence. That point comes close to saying that by violating provisions of the act other than §
1692f(6), you become subject to those provisions, a strange result if one is not subject to those
provisions.
These and other issues must be answered in the future litigation which the case seems sure to
spawn.

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Sharp Thinking is an occasional newsletter of Sharp-Hundley, P.C. addressing developments in the law which may be of interest. Nothing contained in Sharp Thinking
shall be construed to create an attorney-client relation where none previously has existed, nor with respect to any particular matter. The perspectives herein constitute
educational material on general legal topics and are not legal advice applicable to any particular situation. To establish an attorney-client relation or to obtain legal advice on
your particular situation, contact a Sharp-Hundley lawyer at 618-242-0200 or one of the addresses provided on page 2 of this newsletter.