Investor Update
January 15, 2019
Source: FHFA
Fannie Mae: Lender Letter LL-2019-01: Impact of Federal Government Shutdown (Servicing)
Investor Update
January 11, 2019
Source: Fannie Mae
In response to questions and feedback from servicers and other industry participants, we are issuing this Lender Letter to clarify our expectations and requirements with respect to credit reporting regarding mortgage loans made to government employees and other workers impacted by the federal government shutdown. These temporary requirements will provide servicer guidance to assist borrowers who have been impacted by the shutdown that began on December 22, 2018. This guidance is effective immediately and will automatically expire when the federal government resumes full operations. If the shutdown lasts for a prolonged period, we may provide additional guidance.
Clarification Regarding Credit Reporting for Borrowers Impacted by the Shutdown
Fannie Mae extends the flexibility to servicers to determine the appropriate method for reporting the status of a mortgage loan for a borrower impacted by the federal government shutdown to the credit repositories. Servicers are permitted, but not required, to suspend credit reporting in these instances. As a reminder, servicers are responsible for complying with all applicable laws when reporting a mortgage loan status to the four major credit repositories.
Contact your Fannie Mae account team, Portfolio Manager, or Fannie Mae’s Single-Family Servicer Support Center at 1-800-2FANNIE (1-800-232-6643) with any questions regarding this Lender Letter.
Carlos T. Perez
Senior Vice President and
Chief Credit Officer for Single-Family
Freddie Mac: FHLMC Guide Bulletin 2019-2: Credit Reporting Guidance Related to the Federal Government Shutdown
Investor Update
January 11, 2019
Source: Freddie Mac
Single-Family Seller/Servicer Guide (Guide) Bulletin 2019-2 provides temporary guidance to help you assist borrowers impacted by the federal government shutdown. Today’s Guide Bulletin includes guidance related to:
•Credit reporting requirements.
•Eligible hardships and forbearance plans.
Thank you for your continued support of borrowers during this time. We will continue to monitor the shutdown and issue additional guidance if necessary. For complete details on our temporary requirements, please read Guide Bulletin 2019-2 [pdf].
Mortgage Industry Chief Gets Some Federal Employees Back to Work with Pay
Industry Update
January 13, 2019
Source: The Real Deal
“Could you make these guys essential?” the chief executive of the Mortgage Bankers Association asked Steven Mnuchin’s senior adviser
Despite the ongoing government shutdown, hundreds of clerks at the Internal Revenue Service are back at work with pay after the Mortgage Bankers Association successfully lobbied the Treasury Department.
The association’s president and CEO Robert Broeksmit spoke with officials including Craig Phillips, a senior adviser to Treasury Secretary Steven Mnuchin, about restarting the IRS’ processing of tax transcripts — a service which verifies would-be homebuyers’ incomes — and a day later Broeksmit heard that clerks were being called back to work, the Washington Post reported. Sources confirmed to the publication that the IRS income verification service resumed last week.
Broeksmit described his exchange with Phillips to the publication: “I said, ‘Look, this is starting to be a problem for the lending industry,’ ” he recounted. “Could you make these guys essential?”
Phillips wrote in an email to the Post that the decision to call 400 clerks back to work “was not taken to benefit the industry. It benefits the consumers that have made loan applications.”
The funds to pay the reinstated workers will come from the fees charged to homebuyers to have their mortgage applications processed. The IRS claims it will be similarly reinstating other services that levy user fees.
“I’d like to take some credit,” said Broeksmit, whose trade association represents 2,300 entities working in the country’s $1.3 trillion mortgage industry, to the Post. “Our direct request got quite rapid results.”
Sunday marked day 23 of the longest government shutdown in U.S. history. An estimated 800,000 workers are furloughed, or working without pay, and this month these federal employees owe a combined $438 million in mortgage and rent payments. [WashPost] — Erin Hudson
Democrats Move to Prevent Foreclosures, Evictions on Unpaid Federal Workers
Legislation Update
January 11, 2019
Source: HousingWire
Additional Resource:
U.S. Congress (S.72 information)
22 Democrats introduce legislation to protect federal workers
There are approximately 800,000 federal workers who are either furloughed or working without pay thanks to the government shutdown. The Federal Housing Administration has already asked the mortgage industry to help those workers with their mortgages, but a group of nearly two dozen congressional Democrats want more protection than that.
This week, a group of 22 Democrats introduced legislation in both the Senate and the House of Representatives that would protect federal workers and their families from foreclosures, evictions, and loan defaults during a government shutdown.
The legislation, titled the “Federal Employee Civil Relief Act,” would prohibit landlords and creditors from taking action against federal workers or contractors who are affected by a government shutdown and unable to pay their rent, mortgages, or other loans.
The bill would also give federal workers the ability to sue creditors and landlords who violate that protection.
Specifically, the bill would protect unpaid federal workers from the following: being evicted or foreclosed; having their car or other property repossessed, falling behind in student loan payments; falling behind in paying bills; or losing their insurance because of missed premiums.
According to the Democrats, this protection would last during a government shutdown and for the 30 days following the resolution of a shutdown to allow federal workers to catch up on their bills.
The effort is being led by Sen. Brian Schatz, D-Hawaii, and Rep. Derek Kilmer, D-Washington.
“While the President and Senate Republicans struggle to get their act together, real people are suffering,” Schatz said in a statement. “Right now, thousands of federal workers and their families are struggling to pay rent and make ends meet. It’s absolutely unacceptable. Our bill will protect federal workers and make sure they aren’t harmed because of a political stunt.”
Kilmer added: “Across 800,000 kitchen tables today, hardworking people are trying to figure out how to pay bills and provide for their families without an income. Federal workers are public servants, they deserve better than being treated like pawns in a negotiation. This shutdown is wrong, and it’s time to reopen the government – but until that happens, it’s Congress’s responsibility to help out the families most affected. This bill gives them some much needed relief.”
Joining Schatz in the Senate are Sens. Ben Cardin, D-Maryland, Chris Van Hollen, D-Maryland, Maggie Hassan, D-New Hampshire, Martin Heinrich, D-New Mexico, Cory Booker, D-New Jersey, Chris Murphy, D-Connecticut, Tammy Baldwin, D-Wisconsin, Sherrod Brown, D-Ohio, Mazie Hirono, D-Hawaii, Mark Warner, D-Virginia, and Catherine Cortez Masto, D-Nevada.
And joining Kilmer in the House are Reps. Sean Maloney, D-New York, Gerald Connolly, D-Virginia, Susie Lee, D-Nevada, Cheri Bustos, D-Illinois, Dan Kildee, D-Michigan, Ann McLane Kuster, D-New Hampshire, Debbie Dingell, D-Michigan, Brendan Boyle, D-Pennsylvania, and Katherine Clark, D-Massachusetts.
“Federal workers are already suffering the consequences of the government shutdown. I’ve heard from many of my constituents facing rent and mortgage payments, student loan bills, and childcare costs that they don’t know how they’ll afford without a paycheck,” Van Hollen said. “This is unacceptable. No federal employee should be punished for a government shutdown they had nothing to do with. I will continue working to reopen the federal government and support our civil servants during this unnecessary Trump shutdown.”
The Shutdown’s Impact on Financial Services
Industry Update
January 13, 2019
Source: National Mortgage News
The government shutdown is now the longest in American history, officially hitting that mark over the weekend. Though only a partial shutdown, it is having an outsize impact on banks, credit unions and mortgage lenders across the country. Some of these have been mitigated due to actions by the Trump administration, while others continue largely unaddressed.
With President Trump refusing to end the shutdown until Democrats agree to fund a wall on the southern border, it is unclear when the shutdown will end. Some predict Trump may eventually give up and instead seek to invoke emergency powers to build the wall, a strategy that carries significant legal risk. Others argue the president will keep the shutdown in place in the hopes pressure builds on Democrats to make a deal.
Following is a look at where financial services are most affected.
IRS income verification
The government shutdown, which began on Dec. 22, has already caused a backlog of mortgage applications and was threatening to do even worse.
Some lenders had become wary of closing loans without IRS documentation known as Form 4506-T, which provides official income verification and tax return transcripts. The form was unavailable with the government closed. But after mortgage officials began lobbying the Treasury Department on the issue, the Trump administration opted to declare personnel who deal with the form as “essential,” thus allowing them to return to work, according to a story that The Washington Post broke late last week.
Though the Post story couched it as the administration doing a favor for a powerful lobby, it may be as much about self-preservation as helping the industry itself. Without access to the form, the mortgage market was in danger of grinding to a standstill, a prospect that would worsen the economic damage from the shutdown. With most polls showing that Americans blame Trump, not Democrats, for the shutdown, the administration was highly motivated to find a way around the issue.
Broader mortgage impact
The Federal Housing Administration has continued to process government-backed loans during the shutdown, but since only a fraction of the mortgage insurance agency is at work, a paperwork backlog has built up and is expected to grow as the shutdown goes on.
The FHA has also stopped assisting financial institutions in underwriting loans. That move mostly doesn’t hurt larger lenders that use the FHA’s automated underwriting system, but it is potentially causing delays for smaller banks, credit unions and other lenders.
House Financial Services Committee Chairwoman Maxine Waters, D-Calif., has warned that worse is yet to come, noting that 95% of Department of Housing and Urban Development employees are on furlough. She noted other areas beyond the FHA that could be affected, including those that rely on HUD’s rental assistance programs.
SBA lending grinds to a halt
The shutdown is eroding confidence in the Small Business Administration as it is unable to process and approve loan applications, creating a backlog that is pushing small businesses to costlier alternative financing.
“Depending on how long the shutdown is in effect, we could see some negative impact to the program and economy,” said Miguel Maldonado, senior vice president at the $9 billion-asset Randolph-Brooks Federal Credit Union in Live Oak, Texas. “The delay … can affect small businesses and their ability to operate, or even get off the ground.”
The longer the shutdown drags out, the worse the impact is liable to be, according to financial services executives.
Alternative lenders, meanwhile, have tried to fill the void, positioning themselves as able to help while banks and credit unions cannot.
Flood insurance
After protest from lawmakers and the mortgage industry, the Federal Emergency Management Agency has resumed selling and renewing flood insurance policies during the shutdown.
The turnabout came after earlier guidance that said FEMA would suspend sales as a result of a lapse in funding.
The agency faced backlash from Waters and industry groups because Congress had voted in December to extend the National Flood Insurance Program through May 31, 2019.
Banks, credit union cut rates
Banks and credit unions across the country are waiving fees and offering low- to no-interest loans to help federal workers affected by the partial government shutdown.
U.S. Bancorp on Friday began offering loans of $100 to $6,000 at low rates to qualified federal employees who have an existing U.S. Bank account so they can cover expenses until they return to work.
Many other large and regional banks have taken similar steps. Citigroup, for example, will make adjustments to fees and interest rates to affected customers across several lines of business, a company spokesman said. Bank of America said late Friday that it had contacted its customers who are affected by the shutdown to let them know about the bank’s assistance programs.
The five federal banking regulators issued a joint statement on Friday encouraging banks and credit unions to assist customers in these ways. The agencies said that assistance offered to workers “should not be subject to examiner criticism.”
Impact on federal employees
Among the hardest hit are federal employees, many of whom are either furloughed and not being paid or forced to work without pay.
For those 800,000 or so employees, not including government contractors, many will miss their ability to pay mortgage or rent payments. Zillow estimated $249 million in lost residential mortgage payments, and further noted that many employees will be scared off from buying new homes or moving.
For now, many lenders are treating the shutdown as if it were a natural disaster.
Overall economic impact?
One thing is clear: The longer the shutdown goes on, the bigger overall economic impact it’s going to have.
S&P has said that if it lasts two more weeks, it will cost the economy roughly $6 billion, more than the $5.7 billion in funding Trump wants to start building the wall.
There are also fears, however, that a prolonged shutdown will depress stock prices, hurt consumer confidence and possibly even start a recession. Retailers, too, may feel pain, though it would be mild if the shutdown ends soon. But with no end to the shutdown in sight, it’s hard to predict what the full toll will be.
MBA’s National Mortgage Servicing Conference & Expo 2019
February 25-28
Orlando, FL
Safeguard is proud to introduce New York Times Best-Selling Author Janine Driver at the MBA National Mortgage Servicing Conference Feb. 25-28, 2019 in Orlando, Fla., as part of our Diamond sponsorship. Join us as we lead a roundtable discussion on the New York Zombie Properties Law from 2-5 p.m. on Feb. 26 or meet us in booth 601 on the exhibit floor. We would love to share with you all of the new and exciting services Safeguard has to offer!
For more information on this event, please click here.
Servicers Must Adjust Operation Policies to Meet HUD Conveyance Deadlines and Avoid Delays
Safeguard in the News
January 11, 2019
Source: HousingWire
Q&A with Michael Greenbaum on the role HUD plays for conveyance deadlines
Executive Conversations is a HousingWire web series that profiles powerful people in the financial industry, highlighting the operations and the people that make this sector tick. In the latest installment, we sit down with Michael Greenbaum, COO of Safeguard, to talk about steps servicers can take to meet conveyance deadlines and the expansion of FHA’s CWCOT program.
Q. What are the best strategies for meeting conveyance deadlines?
A. Reconveyances are one of the biggest challenges mortgage servicers face. Coupled with constant changes in leadership, guidelines, HUD vendors, and the interpretations of regulations, servicers face some significant hurdles with FHA loans. While these revisions to regulatory requirements keep the servicing and property preservation industry on their toes, the resistance and/or inability to efficiently make changes within the organization tend to halt progress and affect the timely conveyance of properties to FHA.
Servicing rules within organizations can stall the conveyance of files in an effort to obtain written approval of expenses to avoid out-of-pocket costs. This is true in waiting for the insurance company to issue a check, as well as waiting for MCM approval of over allowable requests. While some files deserve prudent review and follow up for large expenses, many files can efficiently move through the process with the establishment of standard cost-benefit analysis. Safeguard has worked with several clients to establish standard cost forms that account for unpaid principle balance, cost of repairs for conveyance condition, pending insurance funds, possibility of HUD reimbursement, and expenditures-to-date. Utilization of a standard template can empower front line staff to make decisions faster and avoid bottlenecks of management reviews required within the servicing shop.
The 60-day to sale program would help mortgage servicers and their property preservation partners meet conveyances deadlines more regularly. The concept is completing a convey maintenance inspection 60 days prior to the sale of the property. This ensures that all work is completed in a timely manner, and any issues are remediated prior to sale. Bids can be approved more timely, and pre-sale hazard repairs are not held for post-sale.
Mortgage servicers might also consider giving their property preservation providers delegated authority to place properties ICC. This means allowing them to have the money up-front to get a property ICC and bid to HUD later to decrease risk. At the first post-sale order they will have authority to complete all of the work that is needed.
Q. What is one important policy that needs to be defined with the P&P vendor?
A. Removing personal property following the foreclosure sale is one area where costs can rise and conveyances can experience delays, and procedures already exist to manage this issue. A majority of states do not prohibit servicers from self-help to remove abandoned property following foreclosure sale. Despite this, the majority of servicers do not utilize the FHA allowable to remove and store these items following foreclosure sale. With the release of HUD ML 2010-18, servicers were required prior to HUD conveyance to remove all debris and personals, and place properties into broom swept condition. This was a significant change from prior conveyance requirements and sparked debate between HUD and servicers with regard to shifting liability and risk of an increase in litigation from borrowers citing missing personal property.
HUD reacted quickly with the release of a frequently asked questions (FAQ) providing servicers with a $300 allowable for reimbursement to store abandoned personals in lieu of disposal. The FAQ provided guidance to follow local laws with regard to the removal, disposal and/or storage of abandoned personals. This guidance afforded servicers the ability to pursue self-help and remove the items in effort to convey the property to HUD quicker. Despite the accommodation from HUD, the allowable and guidance is not common practice even today, seven years after the new requirement for broom swept condition.
Alternatively, servicers seek guidance from counsel as to whether or not to pursue an eviction of personal property on a case-by-case basis. This delays conveyance and leaves the property subject to new damages, complaints from neighbors, and potential code violations. The absence of a clear, consistently executed matrix regarding the removal, disposal or storage of abandoned personal property leads to unnecessary bids submitted to HUD, ambiguity in the definition of possession, and confusion surrounding the calculation of the convey due date. Establishing a personal property matrix and providing guidance to your property preservation vendor to execute is a prerequisite for timely conveyance. Likewise, a well-researched, defined policy serves as a defense if legal complaints ensue.
Q. How do you coordinate all players involved?
A. With guidance from FHA prohibiting reimbursement of property preservation and inspection costs incurred after the convey due date, the inability to adopt and revise procedures that bog down the convey process will undoubtedly cost servicers millions of dollars in non-reimbursable expenses. Partnering with your property preservation vendor and adopting best practices communicated by FHA staff and their MCM vendor is crucial in reducing or eliminating out-of-pocket expenses.
To reduce the costs of servicing FHA loans and conveying timely, policies regarding personal property removal, repairing of insurable damages, and waiting for bid approval from the MCM are in need of re-examination. Servicers need to adjust their operating policies to complement the expectations of HUD to avoid conveyance delays. Additionally, pre-foreclosure sale FHA loans have historically taken a back seat to the management of post-sale assets within servicers’ shops. Servicers could realize significant cost savings from taking another look at prioritization of pre-sale assets – specifically in the areas of personal property, insurable repairs, servicing rules and insurance claim settlements.
Q. What are the effects of the CWCOT program?
A. Servicers should re-evaluate the timeframes of when to begin management of post-foreclosure sale files. With the expansion of the (Claims Without Conveyance of Title) CWCOT program allowing servicers to bid market value at the scheduled sale, appraisals are requested well in advance of the scheduled sale and properties reviewed for inclusion in the CWCOT program. This is the time to review the file for outstanding impediments to conveyance condition and status of over allowable requests, in addition to hazard insurance recovery or repairs.
The single largest driver of denied over allowable requests from HUD is missed due diligence timeframes causing the property to be overdue for conveyance. Decisioning the property conditions and denied over allowable requests 60 days prior to scheduled foreclosure sale and providing authorization to your property preservation vendor will result in 20 or more days shaved off the timeframe to place in conveyance condition and greatly reduce out-of-pocket costs associated with missing the due date for conveyance.
Safeguard Properties Unveils Workflow Management Platform
News Release
September 17, 2018
Dallas, Texas, September 17, 2018 — Safeguard Properties is unveiling its integrated field services platform at the Five Star Conference and Expo this week. The platform, named SafeView®, is designed to meet the ever-changing requirements of the mortgage servicing industry and to improve the timeliness and quality of the services Safeguard provides.
SafeView provides order processing, routing, invoicing, and reporting services to ensure quality results to clients through a dynamic rules-based engine. It also integrates with a mobile platform consisting of Safeguard’s proprietary field services applications that provide near real-time property results.
“Safeguard continues to develop technologies that are designed to manage millions of assets while reducing risk, maintaining compliance, and driving client profitability,” said Alan Jaffa, CEO of Safeguard. “This platform is just another example of our commitment to investing in state-of-the-art systems to ensure we remain the most advanced in the mortgage field services industry.”
Consisting of five modules, SafeView delivers end-to-end automated order management, mobile data collection, workflow, billing and analytics through integrated field services software. Those five modules include:
•SafeView Connect serves as the integration gateway, allowing for configurable work orders, results and invoicing data exchange that connects vendors, clients and other partners.
•SafeView Inspect is an integrated mobile inspection app and administrative portal designed to provide full-service field support to our inspectors.
•SafeView Preserve is an integrated mobile property maintenance app and administrative portal utilized by contractors to receive, assign and complete property preservation work orders.
•SafeView Access is designed for clients to manage their portfolio by providing the property-level details including the status of work orders, bids and the results of work that has been performed.
•SafeView Analytics provides customizable current, historical, and location-based data analytics and reporting of field services operations through the life cycle of property inspections and maintenance.
“SafeView is the first full-service inspections and property preservation system that utilizes ‘smart’ scripting, panoramic photos, video and audio to provide a comprehensive assessment of our clients’ properties,” said George Mehok, chief information officer for Safeguard Properties. “It is uniquely designed to integrate with our vendors, client systems and technology partners, which enables an efficient work flow.”
About Safeguard
Safeguard Properties is the mortgage field services industry leader, inspecting and preserving vacant and foreclosed properties across the U.S. With a focus and investment in innovative technologies, Safeguard provides the highest quality service to our clients by proactively developing industry best practices and quality control procedures. We pride ourselves in our dedication to working with community leaders and officials to eliminate blight and stabilize neighborhoods across the country. Learn more at www.safeguardproperties.com.
Supreme Court Debates Meaning of ‘Debt Collector’ in Foreclosure Protections Case
Updated 3/20/19: HousingWire published an article outlining a Supreme Court ruling that has awarded mortgage lenders and servicers additional protection when serving non-judicial foreclosures.
Article (Supreme Court Makes it Harder for Borrowers to Fight Foreclosures in Non-Judicial States)
Supreme Court Decision (OBDUSKEY v. MCCARTHY & HOLTHUS LLP)
Updated 3/20/19: DS News published an article discussing the Supreme Court decision for the case of Obduskey v. McCarthy & Holthus LLP.
Article (McCarthy & Holthus Responds to Supreme Court Foreclosure Ruling)
Industry Update
January 7, 2019
Source: CNBC
WASHINGTON – Markets are racked by turmoil, and there are signs the booming U.S. economy could slow down later this year. Yet the Supreme Court is reckoning with the lingering fallout from the financial crisis that rocked the global economy a decade ago.
The top court on Monday attempted to resolve a legal question that could have broad ramifications on hundreds of thousands of Americans who are foreclosed on without a judicial process each year. A key issue in the matter is who or what can be considered a “debt collector.”
The justices were divided, but not into clear ideological zones. Chief Justice John Roberts and Justice Brett Kavanaugh, Republican-appointed conservatives who are typically business friendly, were among the most skeptical questioners of the respondent in the case, a law firm working on behalf of Wells Fargo.
To be sure, there are ideological divides at issue. Sen. Elizabeth Warren, D-Mass., who announced a formal step toward a bid for the presidency last month, took a public stance on behalf of the petitioner in the case.
Warren, alongside potential 2020 contender Sen. Sherrod Brown, D-Ohio; Rep. Maxine Waters, D-Calif.; and a slate of other liberal lawmakers, filed a brief outlining what they believed was Congress’s intent in drafting the law at issue.
On the other side was the Trump administration, which dispatched the solicitor general, as well as powerful business interests including the Chamber of Commerce and associations representing bankers.
The case centers on Dennis Obduskey, a Colorado man who defaulted on his $329,940 home loan in the aftermath of the 2007 financial crisis. The question in the case is whether Obduskey is entitled to legal protections for debtors provided by Congress in 1977, or whether the foreclosure is exempt because it is Obduskey’s home, and not money, that is at stake.
Obduskey obtained his home loan from a company called the Magnus Financial Corporation in 2007. Like many other Americans, he defaulted on the loan in 2009.
The bank then attempted to foreclose on Obduskey for six years, to no avail. Finally, in 2015, Wells Fargo retained a law firm — McCarthy & Holthus — to handle the foreclosure proceedings. But, as of the latest briefs in the case, Obduskey’s home has yet to be sold.
The question of whether a law firm seeking to foreclose on a property is a debt collector is one that could affect millions of Americans. In 2016, about 200,000 homes were lost to foreclosure in states that permit lenders to foreclose on a property without going to court. Business groups have argued that these so-called non-judicial foreclosures are more efficient and fair to borrowers. Progressives say borrowers are entitled to more protections.
Obduskey’s attorney, Daniel Geyser, argued that McCarthy & Holthus is a debt collector and therefore required to comply with certain procedural protections contained in the 1977 Fair Debt Collection Practices Act. That law was passed to prevent debt collectors from engaging in abusive or predatory practices.
But Kannok Shanmugam, the attorney for the respondent in the case, argued that the FDCPA does not apply because, he said, the firm is not a debt collector. Shanmugam argued that Congress has long made a distinction between those collecting debts and those who seek to enforce security interests, or collect property that is owed without demanding payment.
The court is expected to issue a ruling by late June.
Justices look split
The semantic fight seemed split the justices into unusual camps, with Roberts at one point remarking to Shanmugam that the law is “not the way you would have told Congress how to write the statute.” Neither was it the way “your friend on the other side” would want Congress to write it, he added, referring to Geyser.
Kavanaugh suggested that he believed the firm was a debt collector. The purpose of a foreclosure, he said, is telling somebody “you need to pay or you’ll lose your house.”
Roberts added that “it certainly is an indirect effort to collect the debt,” which led Shanmugan to concede that Roberts’ point “makes it harder for me,” before he pointed to what he said was a longstanding distinction between debt collectors and those seeking to enforce security interests. It would not make any sense for Congress to distinguish between the two groups if someone enforcing a security interest is a debt collector, he said.
Importantly, the meaning of “debt collector” under the law does not necessarily have to hew to what it means in common speech. Indeed, McCarthy & Holthus itself sent Obduskey a notice identifying itself as a debt collector and requesting payment, which a federal appeals court said was not enough to invoke the FDCPA.
In order to establish what the law meant by “debt collector,” the justices sparred with counsel for much of the argument over the similarities between a law firm seeking to foreclose on a property and a repossession agent, or repo man, who arrives in the “dead of night.”
While a repossession agent might traditionally be considered a debt collector, Geyser argued that in fact Congress meant to distinguish the category.
Repossession agents do not demand payment – they are paid for collecting the property – and therefore would be exempt from some portions of the law, Geyser argued. That is why, he said, Congress made the distinction. But Shanmugam argued that it would not make sense for Congress to have exempted such a narrow category from the law.
Justice Samuel Alito seemed the most receptive to that argument, telling Geyser that Congress’s apparent exception of those enforcing a security interest from the definition of “debt collector” gave Geyser a “tough time.”
Justice Elena Kagan noted that “the grammar of the statute” suggests that the law firm can either be a debt collector, or it can be seeking to enforce a security interest, but not both. Because the firm is “paradigmatic” as a collector of a security interest, it is “a little less odd” to say they are not a debt collector.
Justice Sonia Sotomayor, however, appeared to agree with Geyser’s argument that the firm could be both, and noted that “what’s really at issue is the unfair practices.”
The justices were missing Ruth Bader Ginsburg, who did not attend oral arguments for the first time in more than 25 years on the bench.
The federal appeals courts are divided on the issue. At least two federal appeals courts have reasoned that “debt is synonymous with money” and so the FDCPA therefore would not apply to a law firm that is seeking to collect property.
The district court dismissed Obduskey’s complaint on those grounds, and that decision was ultimately affirmed by the U.S. 10th Circuit Court of Appeals.
At least three other federal circuits have staked out a different interpretation of the law. For instance, the 6th U.S. Circuit Court of Appeals has held that every mortgage foreclosure is undertaken “for the very purpose of obtaining payment on the underlying debt.”
The court, in the 2013 case Glazer v. Chase Home Finance, held that there “can be no serious doubt that the ultimate purpose of foreclosure is the payment of money.”
In a brief, an array of business groups including the Chamber of Commerce and the Mortgage Bankers Association wrote that applying the FDCPA protections to the foreclosure process would add “an additional, unwarranted layer of complexity in the foreclosure process, thereby harming both lenders and borrowers.”
It was not clear on Monday which side would be able to secure the five votes necessary to win. Making any inferences harder was the absence of Ginsburg, who is expected to vote in the case but who was not able to ask any questions of counsel.