Property inspector retained by mortgage servicer is not a debt collector and the door hanger is not debt collection under the FDCPA

In Schlaf v. Safeguard Prop., LLC, No. 17-2811 (7th Cir. Aug. 10, 2018) the Seventh Circuit held that the company contracted by the mortgage servicer to perform occupancy inspections of mortgaged property was not a debt collector and the door hanger it left at the property was not an attempt to collect a debt.

The mortgagors in Schlaf who had defaulted on FHA-insured mortgage brought an FDCPA action against the company contracted by the mortgage servicer to perform occupancy inspections of mortgaged property as required by HUD regulations. The mortgagors alleged that the company had violated FDCPA disclosure requirements by leaving door hangers asking mortgagors to contact their mortgage servicer.

The parties filed cross-motions for summary judgment. The property inspection company argued that it was not a debt collector and the district court agreed. In explaining its ruling, the district court noted that an entity can be a debt collector under the FDCPA under either the “principal purpose” definition or the “regularly collects” definition. Under the “principal purpose” definition, an entity is a debt collector if it “uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts.” 15 U.S.C. § 1692a(6). Under the “regularly collects” definition, an entity is a debt collector if it “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The district court held that the company was not a debt collector under either definition, it was more of a messenger, and it entered judgment accordingly.

The Seventh Circuit affirmed. “[W]e cannot say that [the company] engages in indirect debt collection simply by leaving a door hanger that asks the homeowner to call [the servicer]”. It said that in a very broad, theoretical sense, it is possible to characterize facilitating the reestablishment of communication between the homeowner and the servicer as a preliminary step in the servicer’s own debt-collection process. But it is “difficult” to say that such action even indirectly implicates the specific statutory concerns set forth in the statute.

The Court found that the outward appearance of the inspection gave every indication that it was coming from the servicer. The door hanger did not identify the company in any way, and the phone number connected the homeowner directly to the servicer. The company did not discuss the debt with the homeowners and had no other contact with the homeowners other than to leave the door hanger. The door hanger itself did not give any details about the homeowners’ debt or demand payment.

In addition, the door hanger is not made “in connection with” debt collection. While there is no bright line rule, for determining whether a communication was made in connection with debt collection; but under a “commonsense inquiry” the door hangers do not qualify. They contain no demand for payment and, indeed, make no reference to the mortgagors debt whatsoever, other than to give the servicer’s name and phone number. The door hangers contain no offers of debt settlement or repayment options, and the door hangers are left to encourage, on behalf of the servicer to contact the servicer. However, given that the door hangers are left as part of an occupancy inspection and not left in the context of a collection letter or notice of default, the door hangers are left in connection with property preservation, not debt collection.

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