Civil Litigation, Bankruptcy, and Administrative Law

Trustees as Debt Collectors

Does a trustee foreclosing on a property pursuant to deed of trust qualify as a debt collector under the FDCPA? 

Recently the U.S. District Court for the Western District of Virginia, addressed this issue in deciding a motion to dismiss in Townsend v. Federal National Mortgage Association, et al., 2013 U.S. Dist. LEXIS 18588 (W.D. Va. 2013).   The court cited the Fourth Circuit’s decision in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373 (4th Cir. 2006), for the proposition that trustees acting in connection with a foreclosure can qualify as debt collectors under the FDCPA.  Foreclosure trustees are, however, not automatically debt collectors.  Since the Wilson decision, courts in Virginia have not automatically held that a trustee in the foreclosure context is a debt collector.

The determination as to whether a trustee is classified as a debt collector hinges upon the language in the notice sent by the trustee to the debtor.   If a notice provided by a trustee contains information related to the collection of the debt and not the particulars of the foreclosure (e.g., when and where it will take place), the trustee is likely to be found to be debt collector under the FDCPA.  Specifically, a notice that identifies the amount of the debt, the creditor to whom the debt is owed, how and to whom the debt can be paid, and provides information regarding the 30-day verification period pursuant to 15 U.S.C. 1692g(a) of the FDCPA, will likely result in a finding that the trustee is a debt collector.  Although you cannot opt into the FDCPA, in the Townsend case, the Court noted that the trustee’s notice also contained the following:

THIS IS AN ATTEMPT TO COLLECT A DEBT

THIS IS A COMMUNICATION FROM A DEBT COLLECTOR ANY INFORMATION OBTAINED WILL BE USED FOR THAT PURPOSE

If a trustee wishes to avoid being classified as a debt collector under the FDCPA, it is advisable that he or she avoid language that relates to the collection of the debt and instead limit the scope of the correspondence with the debtor to the foreclosure.

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