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Mortgage Servicers Beware: FDCPA May Apply Even if the Mortgage Is Not in Default

Bridge v. Ocwen Federal Bank, FSB, __F.3d__, 1470148 (6th Cir. 2012)

May 7, 2012

In a decision at odds with both the plain language of the Fair Debt Collection Practices Act (FDCPA) and a long line of precedent, the United States Court of Appeals for the Sixth Circuit ruled on April 30, 2012 that a pro se plaintiff stated an FDCPA claim against a mortgage servicer where the mortgage was not actually in default. In Bridge v. Ocwen Federal Bank, FSB, the Court reversed the district court's grant of the defendants' motion to dismiss plaintiffs' FDCPA claim. The Court held that the mortgage servicer and the purchaser of the mortgage were subject to the FDCPA (despite their arguments and the plaintiffs' allegations that the mortgage was not in default) because the mortgage servicer treated the mortgage as if it were in default and attempted to collect it as a defaulted debt.   

The Bridge Court explained that it interpreted the definition of debt collector to include mortgage servicers who treat a loan as if it were in default even when it is not. Here, the Sixth Circuit is simply wrong. The FDCPA’s definition of “debt collector” excludes creditors and those who collect debts that are not in default. 15 U.S.C. § 1692a(6)(F)(iii). For mortgage servicers, this means that the servicer either "stand[s] in the shoes of a creditor" for whom it is servicing the mortgage (in which case the FDCPA does not apply), or it "become[s] a debt collector, depending on whether the debt was assigned for servicing before the default or alleged default occurred." The Bridge Court reasoned that a debt that is merely alleged to be in default qualifies as a debt that is subject to the FDCPA because the definition of debt collector includes collection of "debts owed or due or asserted to be owed or due another." In the Bridge Court’s opinion, this means that "a debt holder or servicer is a debt collector when it engages in collection activities on a debt that is not, as it turns out, actually owed." Thus, in the Sixth Circuit, a mortgage servicer that treats a mortgage debt as if it is in default will be considered a debt collector under the FDCPA regardless of whether the mortgage was actually in default. The Bridge Court further concluded that the reason behind mistakenly treating the mortgage as defaulted—clerical mistake, error, or intentional—does not matter.

In Bridge, the mortgagor experienced a problem with her bank clearing one of her monthly mortgage payments. The problem was quickly corrected but, before it was corrected, the mortgage was purchased by a trust and assigned to a new mortgage servicer. That servicer, having been wrongly informed that the mortgage was in default, treated the mortgage as if it were in default, attempted to collect amounts it had been told were past due, and hired a law firm to commence foreclosure. The plaintiff alleged in the FDCPA lawsuit that the mortgage was not actually in default and the servicer agreed that the mortgage was not actually in default, but the Bridge Court reasoned that, even though the mortgage was not actually in default, the servicer's actions in attempting to collect it as if it were in default qualified the servicer as a debt collector under the FDCPA. The Bridge Court noted that no assignment of the mortgage was ever recorded to show that the trust had purchased the mortgage, which would have shown it was a creditor and that a new servicer had begun servicing the mortgage for the creditor.

The Bridge Court’s interpretation is contrary to a long line of cases, and even Sixth Circuit precedent, that (a) examine the actual status of whether the debt is in default to determine whether the defendant is a “debt collector” and not to a characterization of the debt status, and (b) mortgage servicers are not subject to the FDCPA if they service loans that were not in default at the time they began servicing them. 

While the Sixth Circuit stands alone in this contrary interpretation of the FDCPA, mortgage servicers may want to check their newly received mortgages and carefully examine what may appear to be defaults before attempting collection.

Should you have any questions about this ruling or need additional information, please contact Richard Gottlieb, Director of Dykema's Financial Industry Group, at 312-627-2196.

For more information about Dykema’s Consumer Financial Services practice, please contact Richard Gottlieb, or any of the listed attorneys.


As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2012 Dykema Gossett PLLC.

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2017 Dykema Gossett PLLC.