The United States Court of Appeals for the Sixth Circuit has issued an opinion that sheds light on whether foreclosure proceedings constitute debt collection. In Scott v. Trott Law, P.C., the Court held that under the Fair Debt Collection Practices Act, a debt collector had a duty to ensure that foreclosure proceedings were stopped after receiving a dispute letter from the borrower.
Trott Law, P.C. was retained by a national lender to manage foreclosure proceedings on a delinquent mortgage. Upon learning that his home was being referred to foreclosure, the borrower, Kevin Scott, sent Trott a letter disputing the validity of the debt. Trott received Scott’s dispute letter on October 11, 2016. At the direction of Trott, foreclosure notices were posted three days later at the property and in a local newspaper.
Scott subsequently filed a complaint against Trott arguing that it should have ceased debt collection activity after receiving his dispute letter. Scott argued that Trott failed to do so because after receipt of the dispute letter, it allowed the foreclosure notices to be published, failed to cancel the sheriff’s sale, refused to communicate with Scott, and opposed Scott’s motion for temporary injunction. Trott responded by arguing that after it received Scott’s dispute letter, it did not take any additional actions towards debt collection. Trott’s theory was that because it was not the party committing the act of publishing the foreclosure notices, it effectively ceased debt collection activities after receiving the dispute letter.
The district court ruled in favor of Trott, finding that under the FDCPA Trott had ceased debt collection activities after receiving Scott’s dispute letter on October 11. The district court agreed with the argument that because Trott itself did not perform any additional acts in pursuit of foreclosure, it had ceased debt collection activities.
The Sixth Circuit overturned the district court’s decision, finding that Trott had a duty to ensure that the foreclosure sale was completely stopped until it obtained verification of the debt. In other words, a dispute letter must “stop the clock” on foreclosure proceedings. To allow the essential elements of foreclosure to proceed, the Court reasoned, “would render the dispute letter a nullity.”
This is a significant ruling by the Sixth Circuit in that it expands the umbrella of what constitutes debt collection. Although the debt collector in this case did not take any additional steps towards foreclosure after receiving the dispute letter, this decision imposes a duty to take steps in the opposite direction – to prevent the foreclosure from occurring.