Vien–Phuong Thi Ho v. Recontrust Co., NA

• Citation: 858 F.3d 568
• Decision Date: 19 October 2016
• Docket Number: No. 10-56884,10-56884
• Parties: VIEN–PHUONG THI HO, Plaintiff–Appellant, v. RECONTRUST COMPANY, NA, subsidiaries of Bank of America, N.A.; Countrywide Home Loans Inc; Bank of America, N.A., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

858 F.3d 568

VIEN–PHUONG THI HO, Plaintiff–Appellant,

v.RECONTRUST COMPANY, NA, subsidiaries of Bank of America, N.A.; Countrywide Home Loans Inc; Bank of America, N.A., Defendants–Appellees.

No. 10-56884

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 5, 2015

Submission Vacated June 8, 2015

Resubmitted September 3, 2015 Pasadena, California

Filed October 19, 2016

Amended May 22, 2017

Nicolette Glazer, Esq. (argued), Law Offices of Larry R. Glazer, Century City, California, for Plaintiff-Appellant.

Margaret M. Grignon (argued) and Kasey J. Curtis, Reed Smith LLP, Los Angeles, California; Carolee A. Hoover and David C. Powell, McGuire Woods LLP, San Francisco, California; for Defendants-Appellees.

Dean T. Kirby, Jr. and Martin T. McGuinn, Kirby & McGuinn, A P.C., San Diego, California, for Amici Curiae United Trustee's Association, California Bankers Association, American Legal and Financial Network, Arizona Trustee Association and California Mortgage Association.

Meredith Fuchs, General Counsel, To-Quyen Truong, Deputy General Counsel, John R. Coleman, Assistant General Counsel, Nandan M. Joshi and Thomas M. McCray-Worrall, Attorneys, Consumer Financial Protection Bureau, Washington, D.C., for Amicus Curiae Consumer Financial Protection Bureau.

Before: Alex Kozinski and Consuelo M. Callahan, Circuit Judges, and Edward R. Korman,^* Senior District Judge.

Partial Dissent and Partial Concurrence by Judge Korman

OPINION

KOZINSKI, Circuit Judge:

The principal question in this appeal is whether the trustee of a California deed of trust is a "debt collector" under the Fair Debt Collection Practices Act (FDCPA).

FACTS

Vien-Phuong Thi Ho bought a house in Long Beach using funds she borrowed from Countrywide Bank. The loan was secured by a deed of trust. A deed of trust involves three parties. See Yvanova v. New Century Mortg. Corp. , 62 Cal.4th 919, 926–27, 199 Cal.Rptr.3d 66, 365 P.3d 845 (Cal. 2016) (explaining California deeds of trust). The first party is the lender, who is the trust beneficiary. The second party is the borrower-trustor, who holds equitable title to the property. The third party is the trustee, an agent for both the lender and the borrower who holds legal title to the property and is authorized to sell the property if the debtor defaults. Id. at 927, 199 Cal.Rptr.3d 66, 365 P.3d 845. In this case, the lender was Countrywide, the borrower was Ho and the trustee was ReconTrust.

After Ho began missing loan payments, ReconTrust initiated a non-judicial foreclosure. See id. at 926–27, 199 Cal.Rptr.3d 66, 365 P.3d 845 (detailing California's complex statutory procedure governing non-judicial foreclosures). As the first step in this process, ReconTrust recorded a notice of default and mailed this notice to Ho. See Cal. Civ. Code § 2924(a)(1). The notice advised Ho that she owed more than $20,000 on her loan and that she "may have the legal right to bring [her] account in good standing by paying all of [her] past due payments" to Countrywide. The notice also advised Ho that her home "may be sold without any court action." Ho did not pay up. ReconTrust then took the second step in the process by recording and mailing a notice of sale. See Cal. Civ. Code § 2924(a)(3). This notice advised Ho that her home would be auctioned "unless [she took] action to protect [her] property." Following the trustee's sale, ReconTrust would deliver the deed to the purchaser and the proceeds of the sale to Countrywide. See 5 Harry D. Miller & Marvin B. Starr, Cal. Real Est. § 13:1 (4th ed. 2015). Ho would then lose both possession of the house and her right of redemption. Id. §§ 13:266, 13:267.¹

Ho filed this lawsuit alleging that ReconTrust violated the FDCPA by sending her notices that misrepresented the amount of debt she owed. See 15 U.S.C. § 1692e(2)(A). Ho also sought to rescind her mortgage transaction under the Truth in Lending Act (TILA) on the ground that the defendants had perpetrated fraud against her. See 15 U.S.C. § 1635(a). The district court twice dismissed Ho's rescission claim without prejudice, and Ho did not replead it. The district court then granted ReconTrust's motion to dismiss Ho's FDCPA claims.²

Ho appeals, arguing that ReconTrust is a "debt collector" because the notice of default and the notice of sale constitute attempts to collect debt. Because both notices threatened foreclosure unless Ho brought her account current, she reasonably viewed those documents as an inducement to pay up. Ho also argues that her TILA rescission claim should be reinstated on appeal because our circuit clarified the requirements for such a claim between the district court's dismissal and this appeal. See Merritt v. Countrywide Fin. Corp. , 759 F.3d 1023, 1032–33 (9th Cir. 2014).

DISCUSSION

I

The FDCPA subjects "debt collectors" to civil damages for engaging in certain abusive practices while attempting to collect debts. See §§ 1692d–f, 1692k. The statute's general definition of "debt collector" captures any entity that "regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due [to] another." § 1692a(6). Debt is defined as an "obligation ... of a consumer to pay money." § 1692a(5).

The FDCPA imposes liability only when an entity is attempting to collect debt. 15 U.S.C. § 1692(e). For the purposes of the FDCPA, the word "debt" is synonymous with "money." 15 U.S.C. § 1692a(5). Thus, ReconTrust would only be liable if it attempted to collect money from Ho. And this it did not do, directly or otherwise. The object of a non-judicial foreclosure is to retake and resell the security, not to collect money from the borrower. California law does not allow for a deficiency judgment following non-judicial foreclosure. This means that the foreclosure extinguishes the entire debt even if it results in a recovery of less than the amount of the debt. Cal. Civ. Code § 580d(a); see Burnett v. Mortg. Elec. Registration Sys., Inc. , 706 F.3d 1231, 1239 (10th Cir. 2013) ("[A] non-judicial foreclosure does not result in a mortgagor's obligation to pay money —it merely results in the sale of property subject to a deed of trust."); Alaska Tr., LLC v. Ambridge , 372 P.3d 207, 228 (Alaska 2016) (Winfree, J., dissenting) (noting that non-judicial foreclosure "does not in and of itself collect a debt, but rather calls for the vesting and divesting of title to real property according to the parties' prior agreement" (internal quotation marks omitted)). 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 prospect of having property repossessed may, of course, be an inducement to pay off a debt. But that inducement exists by virtue of the lien, regardless of whether foreclosure proceedings actually commence. The fear of having your car impounded may induce you to pay off a stack of accumulated parking tickets, but that doesn't make the guy with the tow truck a debt collector.

Our holding today affirms the leading case of Hulse v. Ocwen Federal Bank , 195 F.Supp.2d 1188, 1204 (D. Or. 2002), which held that "foreclosing on a trust deed is an entirely different path" than "collecting funds from a debtor."³ We acknowledge that two circuits have declined to follow Hulse . Glazer v. Chase Home Fin. LLC , 704 F.3d 453, 461 (6th Cir. 2013) ; Wilson v. Draper & Goldberg, P.L.L.C. , 443 F.3d 373, 378–79 (4th Cir. 2006). But neither case concerned the nuances of California foreclosure law, and we find neither case persuasive here. The Fourth Circuit in Wilson was more concerned with avoiding what it viewed as a "loophole in the Act" than with following the Act's text. 443 F.3d at 376. We rely on policy to help interpret statutory language; we don't make it ourselves. The Sixth Circuit's decision in Glazer rests entirely on the premise that "the ultimate purpose of foreclosure is the payment of money." 704 F.3d at 463. But the FDCPA defines debt as an "obligation of a consumer to pay money." 15 U.S.C. § 1692a(5) (emphasis added). Following a trustee's sale, the trustee collects money from the home's purchaser, not from the original borrower. Because the money collected from a trustee's sale is not money owed by a consumer, it isn't "debt" as defined by the FDCPA.

The most plausible reading of the statute is that the foreclosure notices were "the enforcement of [a] security interest[ ]" as contemplated by section 1692f(6) rather than "debt collection" as contemplated by section 1692a. The FDCPA's general definition of "debt collector," contained at section 1692a(6), applies to entities that "regularly collect[ ] or attempt [ ] to collect, directly or indirectly, debts owed or due or asserted to be owed or due [to] another." Entities that qualify as debt collectors under this general definition are debt collectors for purposes of the entire statute. However, the FDCPA also includes a narrower definition of "debt collector." This narrower definition of the term "also includes" entities whose principal business purpose is "the enforcement of security interests." 15 U.S.C. § 1692a(6). This provision would be superfluous if all entities that enforce security interests were already included in the definition of debt collector for purposes of the entire FDCPA. But the relationship between sections 1692a(6) and 1692f(6) makes sense if some security enforcers are debt collectors only for the limited purposes of section 1692f(6). All parties agree that ReconTrust is a debt collector under the narrow definition. Ordinarily, section 1692f(6) would protect a consumer against the abusive practices of a security enforcer who does not fit the broader definition of a debt collector. But that doesn't matter in our case because ReconTrust is not accused of conduct prohibited by section 1692f(6). The sole question here is whether ReconTrust is a debt collector under the general...