In most circumstances, we at The Meisner Law Group have found that the best recommended option to pursue foreclosure on a property for delinquent assessments is a judicial action as opposed to nonjudicial foreclosure by advertisement. Now, there is even more reason to prefer judicial action, as a recent decision concerning the federal Fair Debt Collection Practices Act (FDCPA) has called into question the advisability of hiring a third party to pursue any foreclosure by advertisement in Michigan.
In Salewske, et al. v. Trott & Trott, 2017 WL 2888998, decided on July 7, 2017, the U.S. District Court for the Eastern District of Michigan largely adopted a magistrate’s recommendation, including that the defendant debt collector’s motion to dismiss be denied. The defendant had argued in the motion that the public notices given during the foreclosure by advertisement process could not constitute communication in connection with the collection of a debt under the FDCPA because the notices were required by Michigan law. Indeed, their public notices were standard, and the defendants have been following the same practice along with many other firms performing similar services, for many years.
However, the District Court noted that it must rule in accordance with the federal Sixth Circuit Court’s decision in Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013):
“…mortgage foreclosure is debt collection under the FDCPA… [l]awyers who meet the general definition of a ‘debt collector’ must comply with the FDCPA when engaged in mortgage foreclosure… every mortgage foreclosure, judicial or otherwise, is undertaken for the very purpose of obtaining payment on the underlying debt, either by persuasion (i.e., forcing a settlement) or compulsion (i.e., obtaining a judgment of foreclosure, selling the home at auction, and applying the proceeds from the sale to pay down the outstanding debt).”
The District Court found that the public notices given in accordance with foreclosure by advertisement could reasonably be found by a jury to be “animated” by an attempt to induce payment, which would mean the notices are communications subject to the FDCPA.
The most problematic provision of the FDCPA with respect to foreclosure by advertisement may be Section 1692c(b):
“Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.” (emphasis added)
A foreclosure by advertisement in accordance with Michigan law requires communication with the public, which would of course include persons other than those allowed by the FDCPA.
The question then becomes whether the FDCPA preempts Michigan’s foreclosure by advertisement statute, a question which has not yet been settled by Salewske. However, this will likely be the subject of further arguments in the case. As the District Court noted, its ruling is narrow in scope and is only concerned with the defendant’s motion to dismiss; other questions remain unanswered for now. The District Court also specifically noted certain arguments that the defendant did not make, so perhaps the outcome would have been different if they had made those arguments.
Notably, other federal appellate courts’ opinions have differed from the Sixth Circuit on this issue, where foreclosure has not been recognized as a collection action subject to the FDCPA and instead is distinguished as “enforcement of a security interest”. However, Michigan’s federal courts are subject to the Sixth Circuit and for now must rule in accordance with Glazer.
Despite the ruling’s narrow scope, will this decision have a chilling effect on foreclosure by advertisement in Michigan, at least until Salewske is concluded? We would expect that it would, given that the door may be open for a jury to decide, on a case-by-case basis, whether the intent of foreclosure by advertisement was to induce payment. And the question of whether the FDCPA preempts state law remains an open question. Why worry about these issues with a foreclosure by advertisement when you have the alternative of judicial foreclosure? It takes longer and may be more expensive but ultimately may be more effective.
It remains to be seen whether the Supreme Court of the United States will be asked to weigh in to finally clarify these issues. Or, the FDCPA could be revised by Congress to specifically clarify how it applies to foreclosure actions.
By Robert M. Meisner, Esq., Brian Harris, Esq. and Mark Petrie, Legal Assistant