Is a Mortgage Loan Servicer Subject to the FDCPA?

For many homeowners, the monthly home loan payment is sent to a mortgage servicer, not to the lender. A mortgage servicer is a company that acts as a mortgage holder’s agent and collects and processes the monthly mortgage payment for a percentage of the interest payment. Distinguishing when a company is a servicer or a note holder can be confusing because big banks like Wells Fargo and Bank of America have servicing groups. U.S. Bank may hold the home loan note, but Bank of America may service the loan for U.S. Bank.

Mortgage servicers operate under many federal and state laws, such as the Real Estate Settlement Procedures Act (RESPA) and the Truth-in-Lending Act (TILA). A mortgage servicer is obviously a “third party” and a “collector,” but does the mortgage servicer meet the statutory definition of a debt collector and fall under the Fair Debt Collection Practices Act (FDCPA)?

The FDCPA’s definition of “debt collector” excludes creditors and those who collect debts that are not in default. See 15 U.S.C. § 1692a(6)(F)(iii). Consequently, if a home loan is transferred to a mortgage servicer while the loan is current, any attempt to collect the debt by the home loan servicer is not subject to the FDCPA. The FDCPA does not apply to that servicer even if the loan subsequently goes into default status. If a home loan is transferred to a loan servicer during a time when the loan is in default, then its collection activity is subject to the FDCPA.

But don’t always believe the plain language of the statute because sometimes the courts have different interpretations. . .

In 2012, the United States Court of Appeals for the Sixth Circuit (which hears federal appellate case from Kentucky, Michigan, Ohio, and Tennessee) held that a mortgage servicer was liable under the FDCPA even though the loan was not in default. In Bridge v. Ocwen Federal Bank, FSB, 681 F.3d 355 (6th Cir. 2012), the appellate court held that the mortgage servicer and the purchaser of the mortgage were subject to the FDCPA because the mortgage servicer treated the mortgage as if it were in default and attempted to collect it as a defaulted debt. Contrary to the plain language of the FDCPA, the court explained that it interpreted the definition of debt collector found in the FDCPA to include mortgage servicers who treat a loan as if it were in default even when it is not. The holding concluded that the reason for mistakenly treating the mortgage as defaulted, such as a clerical mistake, error, or even intentional, does not matter.

If you are being harassed by a loan servicer, speak with an experienced bankruptcy or consumer debt attorney regarding your state and federal legal protections. Your attorney can explain your options for stopping harassment and saving your home from foreclosure. 

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