On March 20, 2019, the Supreme Court ruled in the case of Obduskey v. McCarthy & Holthus LLP that a law firm that carries out non-judicial foreclosure proceedings would not be considered a "debt collector" pursuant to the Fair Debt Collection Practices Act ("FDCPA"), other than for a limited purpose.
In the case, Dennis Obduskey purchased a home using a mortgage loan that was secured by the property he purchased. Two years later, Mr. Obduskey defaulted on the loan and the lender subsequently retained a law firm - McCarthy & Holthus LLP - to conduct a non-judicial foreclosure. McCarthy & Holthus LLP told Mr. Obduskey that it had been retained to start foreclosure proceedings, disclosed the amount outstanding on the loan and identified the creditor. Mr. Obduskey requested verification of the amount owed as required by Section 1692g(6) of the FDCPA. Instead of ceasing collection efforts and supplying verification of the debt, McCarthy & Holthus LLP instituted a non-judicial foreclosure.
As explained more fully in a Cadwalader memorandum, the Supreme Court ultimately determined that McCarthy & Holthus LLP was not a "debt collector" and thus was not subject to the full reach of the FDCPA. In the opinion, the Supreme Court stated that foreclosure is a means of collecting a debt and determined the actions undertaken by McCarthy & Holthus LLP in pursuing a non-judicial foreclosure did subject it to the mandates of the FDCPA with the exception of Section 1692f(6).
The memorandum was authored by Steven Herman and Nicholas Brandfon.
Commentary / Steven Herman
Obduskey v. McCarthy & Holthus LLP makes clear that a lawyer or other person pursuing a non-judicial foreclosure is not subject to the full coverage of the FDCPA. In those cases, a person pursuing non-judicial foreclosure is subject to any applicable state laws related to non-judicial foreclosure. It should be noted, however, that both the majority opinion and especially the concurring opinion by Justice Sotomayor leave open the possibility that Congress may revisit the FDCPA to specifically expand its reach to the enforcement of security interests. Additionally, the concurring opinion emphasized that the decision does not suggest that "pursuing nonjudicial foreclosure is a license to engage in abusive debt collection practices like repetitive nighttime phone calls; enforcing a security interest does not grant an actor blanket immunity from the Act."
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