In Alaska Trustee, LLC and Stephen Routh v. Brett Ambridge and Josephine Ambridge, the Alaska Supreme Court considered whether Alaska Trustee and Routh were “debt collectors” subject to liability under the Federal Debt Collection Practices Act (FDCPA). The case represents another in a growing body of precedent revolving around the fundamental issue of whether law firms and trustees involved in judicial or non-judicial foreclosure processes are “debt collectors” for FDCPA purposes. In Alaska Trustee, LLC, the Alaska Supreme Court joined with other courts in answering the question in the affirmative for trustees in non-judicial foreclosure states.
Routh was the sole owner and shareholder of Alaska Trustee, which acted as a processor of non-judicial foreclosures of deeds of trust on real property. Alaska Trustee’s activities included “ordering the title report, recording the Notice of Default in the real property records, providing notice of the foreclosure as required by statute, responding to requests from the borrower . . .for reinstatement or payoff quotes,” and handling formalities before and after the foreclosure sales. In support of its argument to be excluded from FDCPA coverage, Alaska Trustee noted it did not bring suit to recover on an underlying note, nor did it write demand letters.
The Ambridges took out a home loan from Alaska Housing Finance Corporation in 2006, secured by a deed of trust against the property and serviced by Wells Fargo Bank, N.A. After curing an initial default in late 2007, the Ambridges fell behind again and received another notice of default from Alaska Trustee in 2009. This time they failed to cure the default, and the property was sold at auction in December 2009.
The notices of default were at issue. Alaska Trustee’s notices stated the principal amount due, but neither included the full amount due, as they failed to specify what was owed for “interest, late charges, costs and any future advances.” Federal law requires, among other things, that a consumer be informed of “the amount of the debt” in the initial communication about the debt or within five days thereafter.
Alaska Trustee argued that recovering collateral, as pursuant to a deed of trust, is fundamentally different than seeking payment of money, and that the FDCPA is concerned only with the latter. It argued that nonjudicial foreclosure only results in loss of property, and as such is not a debt collection activity.
The Court determined that the FDCPA should be liberally construed and that an entity pursuing nonjudicial foreclosure is a debt collector subject to the FDCPA, stating that, “[W]e join those courts holding that mortgage foreclosure, whether judicial or nonjudicial, is debt collection covered by the [FDCPA.] . . . the definition of ‘debt’ plainly encompasses a home mortgage, which is usually the most significant of a consumer’s debts, and the definition does not differentiate between consumer debts that are secured and those that are not. The [FDCPA’s] definition of ‘debt collector’ is similarly broad, covering regular collection efforts that are either direct or indirect.” The Court felt that foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt, and that companies engaging in such foreclosures should be included within the definition of a debt collector.
While there is not yet any comprehensive or consistent national guidance on FDCPA liability for non-judicial trustees, those companies serving in such capacity should be very mindful of their potential exposure under the FDCPA. Given the changing tides of FDCPA jurisprudence, trustees may elect, as a precautionary measure, to govern themselves as if they were subject to and governed by the FDCPA.