Today's Trends in Credit Regulation

Limits on the FDCPA: When a Foreclosure Really is Just a Foreclosure
By Anastasia V. Caton

Does a debt collector violate the Fair Debt Collection Practices Act by naming the heirs of a deceased debtor as defendants in a foreclosure on the deceased debtor's home? In Doughty v. Holder, the heirs argued that because they did not owe any debt to the lender, the lender's attorney violated the FDCPA by naming them as defendants in a foreclosure action. The U.S. District Court for the Eastern District of Washington disagreed, and held that the FDCPA does not apply to such an action so long as the foreclosing attorney does not seek a deficiency judgment against the heirs.

Cheryl and Michael Doughty were the children and heirs of Raoul Jack Doughty, a deceased borrower who had a home mortgage with Wells Fargo. Valerie Holder, a lawyer acting on behalf of Wells Fargo and seeking to foreclose on Raoul's home after his death, named Cheryl and Michael as defendants in a foreclosure lawsuit in an attempt to divest them of their potential interests in Raoul's home. The foreclosure complaint sought a "Judgment for Monies Due" against the Doughtys and, if the judgment was not satisfied immediately, a "Decree of Foreclosure" allowing Wells Fargo to sell the real property and apply the proceeds to the money judgment. In the foreclosure complaint, Wells Fargo waived its right to a deficiency judgment. Holder never tried to contact the Doughtys concerning their father's default in any other way outside of the judicial foreclosure context.

The Doughtys sued Holder, alleging that Holder violated the FDCPA by attempting to collect a debt from the Dougtys when they did not owe a debt to Wells Fargo. The court consolidated the Doughtys' case with two others with identical facts. Holder moved for summary judgment on the grounds that she was not a "debt collector" under the FDCPA because she was only enforcing a security interest in the foreclosure action and therefore the FDCPA did not apply to her actions in the foreclosure.

The FDCPA defines "debt collector" as any person who uses any instrumentality of interstate commerce or the mails in any business, the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The definition goes on to say that, only for the purposes of section 1692f(6) of the FDCPA, "debt collector" also includes persons who are enforcing security interests. Courts have interpreted this part of the definition of "debt collector" to mean that, with the exception of section 1692f(6), which sets forth specific unfair practices relating to the non-judicial dispossession or disablement of property, the FDCPA does not apply to persons who are enforcing security interests. Further, courts have held that the FDCPA does not apply to foreclosure proceedings so long as the foreclosing party is enforcing only the security interest and nothing more, such as a personal obligation of the debtor.

In this case, the Doughtys argued that Holder's request for a "Decree of Money Judgment" was more than enforcement of a security interest; they argued that it was a demand for a money judgment against people who were not obligated on the underlying promissory note. As a result, the Doughtys claimed, Holder was a "debt collector" under the FDCPA.

The court disagreed. To explain the difference between Holder's foreclosure action and an ordinary debt collection lawsuit subject to the FDCPA, the court first drew a distinction between unsecured deficiency judgments and foreclosures on secured property. In a Washington foreclosure action, the foreclosing party seeks a "money judgment" first, to set the bid parameters for the sale. The money judgment is secured by the real property, and, despite its name, does not create a monetary obligation for the debtor against whom it is entered. After the sale, the foreclosing party may, at its option, seek a deficiency judgment if the proceeds of the sale did not satisfy the debt. The deficiency judgment is an unsecured personal obligation of the debtor, just like any other money judgment against a debtor for the recovery of an unsecured debt. Thus, court explained, the key difference is that foreclosure judgments are quasi in rem actions (against property only), while deficiency judgments are in personam actions (against the person).

The court found that, because Holder brought a foreclosure action on behalf of Wells Fargo in which the complaint for money judgment only established the bid parameters for sale and in which Wells Fargo explicitly waived its right to a deficiency judgment, Holder was not attempting to enforce a personal obligation of the Doughtys. Further, the court reasoned, Holder never contacted the Doughtys concerning the debt outside of the judicial process of filing the foreclosure lawsuit. Accordingly, the court held that Holder was not a "debt collector" and not subject to the FDCPA, with the exception of section 1692f(6). The court added that if Holder had sought a deficiency judgment against the Doughtys, she likely would have been a "debt collector" under the FDCPA because she would have been enforcing a personal obligation of the debtor. However, the court said even if Holder had been a "debt collector," she did not violate the FDCPA because her actions were not abusive; she was only attempting to set the parameters for the foreclosure bid and divest the Doughty children of their potential interests in the home.

The takeaway here is that foreclosure counsel may be able to avoid liability under the FDCPA when a foreclosure really is just a foreclosure-a quasi in rem action against secured property, and nothing more. In other words, when the foreclosing party waives its right to the elusive in personam deficiency judgment, and foreclosure counsel does not make any other contact with the debtor concerning the default outside of the judicial foreclosure proceedings, there is at least an argument that foreclosure counsel does not meet the definition of "debt collector" for the purposes of many provisions of the FDCPA, including the mini-Miranda warning and debt validation requirements.

Doughty v. Holder, 2013 U.S. Dist. LEXIS 7325 (E.D. Wash. January 21, 2014).

Anastasia V. Caton is an associate in the Maryland office of Hudson Cook, LLP. Anastasia can be reached at 410-865-5418 or by email at

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