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Media Alerts - McCray v. Fed. Home Loan Mortg. Corp., et al. -- Fourth Circuit
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November 8, 2016
  McCray v. Fed. Home Loan Mortg. Corp., et al. -- Fourth Circuit
Foreclosure Attorneys Can Be Considered Debt Collectors under the FDCPA

Areas of Law: Fair Debt Collection Practices Act

Issue Presented: Whether a law firm and its members are "debt collectors" as defined under the Fair Debt Collection Practices Act, when they, on behalf of creditors, pursue foreclosure against a debtor.

Brief Summary: The United States Court of Appeals for the Fourth Circuit reversed the district court's dismissal of the plaintiff's claim under the Fair Debt Collection Practices Act ("FDCPA") against a law firm and its members, because the district court erroneously found they were not "debt collectors" as defined under the FDCPA. The Fourth Circuit held that, as mandated by Powell, to constitute a "debt collector," a person must use a prohibited practice "in connection with the collection of any debt" or in an "attempt to collect any debt." The Fourth Circuit concluded that the defendants' actions surrounding the foreclosure proceeding, including sending a notice of intent to foreclose to the plaintiff, were "attempts to collect [a] debt" and, thus, the defendants were "debt collectors."

Extended Summary: The FDCPA, 15 U.S.C. § 1692a(6), defines the term "debt collector" to include "any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." The definition, however, excludes such a person if his debt collection is "incidental to a bona fide fiduciary obligation." 15 U.S.C. § 1692a(6)(F)(i).

In 2005, Renee McCray ("McCray") took a loan from American Home Mortgage Corporation ("American Home") to refinance her house, giving American Home a 30-year note and a deed of trust on her house to secure repayment of the note. American Home subsequently sold the loan to the Federal Home Loan Mortgage Corporation ("Freddie Mac"), and Wells Fargo was retained to service the loan. In 2011, McCray, disputing a monthly billing statement, sent Wells Fargo a written request for information about the fees and costs that it was charging but received no response. After April 2012, McCray stopped making payments and went into default.

Wells Fargo retained Samuel I. White, P.C. ("the White Firm") to pursue foreclosure. In October 2012, the White Firm sent McCray a notice of intent to foreclose stating the nature of her default and the amount necessary to cure the default. The notice also stated that if McCray did not "bring the loan current . . . such as [by] repayment . . . , a foreclosure action may be filed in court." The notice concluded that the communication was "an attempt to collect a debt." Thereafter, several members of the White Firm were substituted as trustees ("the Substitute Trustees") on the deed of trust and filed for foreclosure in the Circuit Court for Baltimore City in February 2013.

Shortly after the Substitute Trustees commenced the foreclosure proceeding, McCray filed a lawsuit against Freddie Mac, Wells Fargo, the White Firm, and the Substitute Trustees in the United States District Court for the District of Maryland. McCray challenged the amount of her debt and the manner in which the defendants administered the loan. In particular, McCray alleged that the defendants failed to provide McCray with notices and requested information in violation of the FDCPA, the Truth in Lending Act ("TILA"), and the Real Estate Settlement Procedures Act ("RESPA").

The district court dismissed the FDCPA and TILA claims, and granted summary judgment to the defendants for the RESPA claim. With respect to the FDCPA claim against the White Firm and the Substitute Trustees, the only contested issue was whether these defendants were "debt collectors" as defined under the FDCPA. The district court found that the notice of intent to foreclose did not contain an "express demand for payment or specific information about her debt," and thus, was not an attempt to collect the debt. Accordingly, the district court concluded these defendants were not "debt collectors."

The Fourth Circuit affirmed the district court's dismissal of the TILA claim. However, the Fourth Circuit reversed the district court's dismissal of McCray's FDCPA claim against the White Firm and the Substitute Trustees. Citing Powell v. Palisades Acquisitions XVI, LLC, 782 F.3d 119 (4th Cir. 2014), the Fourth Circuit held that to be a "debt collector" under the FDCPA, a person needs only to have used a prohibited practice "in connection with the collection of any debt" or in an "attempt to collect any debt."

The Fourth Circuit found that the White Firm and the Substitute Trustees' activities were taken in connection with the collection of a debt or in an attempt to collect a debt for three reasons. First, citing Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006), the Fourth Circuit explained that the plaintiff's "'debt' remained a 'debt' even after foreclosure proceedings commenced" and that the "[defendants'] actions surrounding the foreclosure proceeding were attempts to collect that debt." Second, the notice of intent to foreclose stated that these defendants were pursuing foreclosure because McCray had "missed one or more payments." Further, the notice stated that if McCray did not "bring the loan current . . . such as [by] repayment . . . , a foreclosure action may be filed in court." The notice also provided McCray with the nature of the default (such as the name of the lender and the date of default) and the amount necessary to cure the default. Third, the Fourth Circuit held that the defendants' actions in foreclosing on the property did not fall within the exception under 15 U.S.C. § 1692a(6)(F)(i) because the defendants' actions were not "incidental to their fiduciary obligation." Citing Wilson, the court held that foreclosure was "central" to the trustee's fiduciary obligation under the deed of trust. These factors led the court to conclude the defendants were "attempt[ing] to collect a debt."

Therefore, the Fourth Circuit concluded that the White Firm and the Substitute Trustees were "debt collectors" under the FDCPA. The Fourth Circuit remanded the case to the district court to determine whether the White Firm and Substitute Trustees, as debt collectors, violated the FDCPA.

To read the full opinion, click here.

Panel: Circuit Judges Niemeyer and Wynn, and District Judge Johnston

Argument Date: 05/10/2016

Date of Issued Opinion: 10/07/2016

Docket Number: No. 15-1444

Decided: Affirmed in part; reversed in part, and remanded by published opinion.

Case Alert Author: Maria Nazarova, Univ. of Maryland Carey School of Law

Counsel: Kenzie Marie Rakes, MEYNARDIE & NANNEY, PLLC, Raleigh, North Carolina, for Appellant. Robert Harvey Hillman, SAMUEL I. WHITE, PC, Rockville, Maryland; Michael S. Barranco, TREANOR POPE & HUGHES, P.A., Towson, Maryland, for Appellees.

Author of Opinion: Circuit Judge Niemeyer

Dissenting Opinion: District Judge Johnston on Part IV

Case Alert Supervisor: Professor Renée Hutchins

    Posted By: Renee Hutchins @ 11/08/2016 10:05 AM     4th Circuit  

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