Vien-Phuong Thi Ho v. ReconTrust, No. 10-56884 (9th Cir. 2017)
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The Ninth Circuit filed an amended opinion affirming in part and vacating in part the dismissal of plaintiff's action for failure to state a claim, holding that the trustee of a California deed of trust is a "debt collector" under the Fair Debt Collection Practices Act (FDCPA).
Actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect "debt" as that term is defined by the FDCPA; enforcement of a security interest will often involve communications between the forecloser and the consumer; and when these communications are limited to the foreclosure process, they do not transform foreclosure into debt collection. The panel explained that, because the money collected from a trustee's sale is not money owed by a consumer, it is not "debt" as defined by the FDCPA. In this case, the notices at issue did not request payment from plaintiff, but merely informed her that the foreclosure had begun, explained the timeline, and apprised her of her rights. Therefore, the panel held that ReconTrust's activities fell into the category of enforcement of a security interest, rather than general debt collection.
Court Description: Fair Debt Collection Practices Act. The panel filed an amended opinion affirming in part and vacating in part the district court’s dismissal of an action for failure to state a claim, and holding that the trustee of a California deed of trust securing a real estate loan was not a “debt collector” under the Fair Debt Collection Practices Act. Seeking damages under the FDCPA, the plaintiff alleged that the trustee of the deed of trust on her property sent her a notice of default and a notice of sale that misrepresented the amount of debt she owed. The plaintiff also sought to rescind her mortgage transaction under the Truth in Lending Act. The panel affirmed the dismissal of the FDCPA claim. Finding unpersuasive decisions of the Fourth and Sixth Circuits, the panel held that the trustee was not a “debt * The Honorable Edward R. Korman, Senior District Judge for the U.S. District Court for the Eastern District of New York, sitting by designation. HO V. RECONTRUST CO. 3 collector” subject to damages under the FDCPA because the trustee was not attempting to collect money from the plaintiff. The panel held that the object of a non-judicial foreclosure in California is to retake and resell the security on the loan. Thus, actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect “debt” as that term is defined by the FDCPA. The panel wrote that following a trustee’s sale, the trustee collects money from the home’s purchaser, not the original borrower. Because the money collected from a trustee’s sale is not money owed by a consumer, it is not “debt.” Accordingly, the foreclosure notices were an enforcement of a security interest, rather than general debt collection under 15 U.S.C. § 1692a(6). The panel held that even though the district court twice dismissed the plaintiff’s TILA rescission claim and she did not replead it in her third complaint, it was preserved for appeal because the district court instructed her that she would be required to allege the ability to repay the loan in order to state a rescission claim. The panel held that under Merritt v. Countrywide Fin. Corp., 759 F.3d 1023 (9th Cir. 2014), decided after the district court’s dismissal, a mortgagor need not allege the ability to repay in order to state a rescission claim. Accordingly, the panel vacated the dismissal of the TILA claim and remanded for consideration of the claim in light of Merritt. The panel affirmed the dismissal of other claims in a memorandum disposition. Judge Korman dissented in part and concurred in part. He wrote that the only reasonable reading of the FDCPA is that a trustee pursuing a non-judicial or judicial foreclosure 4 HO V. RECONTRUST CO. proceeding is a debt collector because both proceedings are intended to obtain money by forcing the sale of the property being foreclosed upon. He also wrote that the FDCPA does not interfere with California’s arrangement for conducting non-judicial foreclosures in a way that would justify nullifying the protections that the FDCPA provides, and the FDCPA’s preemption section provides ample room for the operation of California law. Judge Korman concurred in the remand to the district court for consideration of the TILA rescission cause of action.
This opinion or order relates to an opinion or order originally issued on October 19, 2016.
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