Illinois court holds that the foreclosure of real estate is not an attempt to collect a debt under the FDCPA

U.S. District Court for the Northern District of Illinois held in Hahn v. Anselmo Lindberg Oliver LLC, 1:16-cv-06908 (Mar. 3, 2017) that the foreclosure of real estate is not an attempt to collect a debt under the FDCPA and a law firm that proceeds with foreclosure despite a pending bankruptcy is therefore not liable for FDCPA violations.

After mortgage foreclosure proceedings were commenced, the wife in Hahn filed a chapter 13 bankruptcy petition. The bankruptcy was later dismissed for failure to make plan payments so the mortgagee proceeded with foreclosure. However, during her bankruptcy, the wife quitclaimed the property to herself and to her husband. Thereafter, the husband filed his own chapter 13 petition. His plan was confirmed.

Despite having notice of the husband’s bankruptcy, the mortgagee proceeded to judgment in the foreclosure. The husband and wife sued the mortgagee and its foreclosure counsel, asserting violations of the FDCPA and ICFA. The defendants responded that the foreclosure was not an attempt to collect a debt from the husband at all, and that the wife’s purported transfer of the property was improper because it was done without approval from the bankruptcy court.

Citing the Ninth Circuit’s opinion in Ho v. ReconTrust Co., NA, 840 F.3d 618, 621 (9th Cir. 2016), the court found that the FDCPA did not apply because the foreclosure was not an attempt to collect a debt. It determined that the term “debt” was synonymous with “money” and an attempt to foreclose a security interest by itself is not an attempt to collect money, but property. The court recognized that the threat of foreclosure may induce a debtor to pay but that does not make it an action to collect a debt. It analogized it to the prospect that having one’s car repossessed is an inducement to pay, “but that does not make the tow truck driver a debt collector” citing Ho. The court found that other than prosecuting the foreclosure the defendants did not send debt collection communications or engage in debt collection activity. Moreover, even if a foreclosure does constitute “debt collection”, it did not in this case because the husband had no personal liability for the debt and none was sought in the foreclosure.

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