Legal Memorandum: Fair Debt Collection Practices Act

Issue: Does a mortgagee’s refusal to approve a short sale of property subject to a mortgage when the mortgagor is not the borrower of the loan secured by the mortgage violate the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act isn’t implicated under such circumstances.  First, the FDCPA applies only to efforts to collect “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.”  15 U.S.C. § 1692a(5).  Commercial debts are excluded from the protections of the act.  Second, the mortgagee is likely considered a “creditor,” rather than a “debt collector,” since the mortgagee is the party to whom the alleged debt is owed and therefore “offers or extends credit creating a debt or to whom a debt is owed.”  Compare Id. § 1692a(4), (6).  The FDCPA does not apply to collection efforts made by creditors.  See generally Id. § 1692, et seq. (regulating the conduct of “debt collectors”); McCall v. GMAC Mtge. Corp., Civ. No. 07-10198, 2007 U.S. Dist. LEXIS 30614 (E.D. Mich. Apr. 6, 2007) (unpublished).

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