The Ninth Circuit Court of Appeals in McNair v. Maxwell & Morgan, P.C., recently held that a law firm that files a judicial foreclosure action to collect unpaid homeowner association assessments is acting as a "debt collector" and engaging in "debt collection" activities subject to the Fair Debt Collection Practices Act ("FDCPA").
The FDCPA applies to "debts" and regulates the conduct of "debt collectors." A "debt" is defined in the FDCPA as “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.” 15 U.S.C. § 1692a(5). A debt collector is any entity or person who "regularly collects or attempts to collect ... debts owed or due ... another.” The district court had concluded that filing a judicial foreclosure action was not "debt collection" activity and the law firm that filed it and a subsequent writ of special execution to conduct the sale of Ms. McNair's home was not engaged in “debt collection” activities.
The Ninth Circuit rejected this conclusion. In holding that judicial foreclosure actions constitute debt collection activities, the Court distinguished judicial foreclosure actions from non-judicial foreclosure actions. Because the object of the action is "to retake and resell the security," not to collect money, and deficiency judgments following non-judicial foreclosures are prohibited in many states, the Ninth Circuit held that the latter is not debt collection activities subject to the FDCPA.
Judicial foreclosure actions filed over unpaid homeowner associations, by contrast, principally seek to collect unpaid homeowner association fees. The Ninth Circuit rejected the argument that such fees are not "debts," holding that they constitute obligations "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[.]” Thus, the Court found that the record was clear that the law firm and its lawyers "were in fact 'debt collectors' collecting 'debt.'”
Having established that homeowner association assessments were "debts" under the FDCPA and the law firm and its lawyers were "debt collectors" subject to the FDCPA, The Ninth Circuit held that the law firm and its lawyers violated the FDCPA by including $1,597.50 in unawarded post-judgment attorneys' fees in a writ of special execution filed to complete the sale of McNair's property because "no court had yet approved the quantification of the 'accruing' attorneys' fees claims in the Writ."
The Ninth Circuit held that the law firm "falsely misrepresented the legal status of this debt, by implicitly claiming that the accruing attorneys’ fees of $1,597.50 already had been approved by a court."
The case is McNair v. Maxwell & Morgan, P.C.