Maybe it’s good news for some New Yorkers, but its result probably won’t affect them: The U.S. Supreme Court recently chose to hear a case about whether the Fair Debt Collections Practices Act (FDCPA) applies to parties initiating non-judicial foreclosures. New York State, however, no longer allows non-judicial foreclosures, so the Court’s ruling probably won’t do any good or ill for New York foreclosure or bankruptcy cases. Although, many New Yorkers do own property in other states, so it’s possible that some will have a stake in the outcome. Moreover, the case offers debtors lessons in how to use the law to their advantage against creditors. Here’s what the case, Obduskey v. McCarthy & Holthus LLP, is about.
Dennis Obduskey bought a home in Colorado in 2007, obtaining a $330,000 mortgage in the process. It’s unspecified in the petition to the Court, but Obduskey must have fallen behind in his payments fairly soon afterward, but the servicer, Wells Fargo, began sending him conflicting loan-modification offers, prompting him to file complaints with the Federal Trade Commission. When he defaulted in 2009, Wells Fargo foreclosed on him only in fits, not completing any of them. Finally, in August 2014, Wells Fargo hired the respondent law firm, McCarthy & Holthus, to foreclose on the property on its behalf, and McCarthy & Holthus sent a notice identifying itself as a “debt collector.” Obduskey invoked the FDCPA to halt the foreclosure until it provided him with documentation validating the debt. The law firm simply re-initiated the foreclosure, leading Obduskey to file a complaint with the Consumer Financial Protection Bureau. Finally, he sued under the FDCPA in August 2015.
How the case wound its way to the Supreme Court is a little more straightforward. The federal district court found that the FDCPA does not apply to non-judicial foreclosures, as did the Tenth Circuit Court of Appeals. The petitioner appealed.
The conundrum the case raises is what the petitioner refers to as an “extraordinary and entrenched” confusion. Federal and state courts disagree over whether the FDCPA applies to non-judicial foreclosures. To simplify the legal issues, the lower courts in this case agreed that “debt” is a synonym for “money” under the FDCPA. Non-judicial foreclosures don’t obligate consumers to pay money; therefore, the FDCPA isn’t relevant.
The petitioner and other jurisdictions argue to the contrary that mortgage foreclosures are a tool lenders can use to compel borrowers to repay their debts. Debts being money under the FDCPA, foreclosures, then, are subject to the law’s requirements.
Both sides of the disagreement wrestle over some of the semantics of the FDCPA, which I won’t address, and I also won’t speculate as to how the Supreme Court might rule, especially because few New Yorkers considering bankruptcy will be affected by it. Rather, I’d like to highlight one lesson from the case, no matter its result: the petitioner’s tenacity. Every time either Wells Fargo or the respondent law firm attempted to foreclose on his home, he struck back by exercising his legal rights: FTC, FDCPA, and CFPB complaints, as well as this FDCPA lawsuit and its appeals. Clearly he’s not cowed by big banks.
The petition for the case is here (pdf).
If you are facing serious financial difficulties, then you should learn from the petitioner and be willing to exercise your legal rights, including discussing your case with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.