Wilson v. Draper & Goldberg, P.L.L.C., 05-1392.

Citation443 F.3d 373
Decision Date05 April 2006
Docket NumberNo. 05-1392.,05-1392.
PartiesKaren WILSON, Plaintiff-Appellant, v. DRAPER & GOLDBERG, P.L.L.C.; L. Darren Goldberg, Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (4th Circuit)

ARGUED: Howard Robert Erwin, Jr., Baltimore, Maryland, for Appellant. Rita Ting-Hopper, Draper & Goldberg, P.L.L.C., Leesburg, Virginia, for Appellees. ON BRIEF: Scott R. Grigsby, Draper & Goldberg, P.L.L.C., Leesburg, Virginia, for Appellees.

Before WIDENER, WILKINSON, and TRAXLER, Circuit Judges.

Reversed and remanded by published opinion. Judge TRAXLER wrote the majority opinion, in which Judge WILKINSON joined. Judge WIDENER wrote a dissenting opinion.

TRAXLER, Circuit Judge.

Karen Wilson brought this action against the law firm of Draper & Goldberg, P.L.L.C., and one of its lawyers, L. Darren Goldberg (collectively, "Defendants"), for violation of the Fair Debt Collection Practices Act (the "Act") in connection with Defendants' initiation of foreclosure proceedings against her. Defendants filed a motion to dismiss for failure to state a claim, arguing that they were not covered by the Act. The district court treated the motion as one for summary judgment, and granted it in favor of Defendants. The district court concluded that, because Defendants were acting as substitute trustees foreclosing on a deed of trust, they could not be "debt collectors" under the Act and that any actions they took in connection with the foreclosure could not be challenged as violations of the Act. Wilson appeals, and we reverse and remand.

I.

We review a district court's grant of summary judgment de novo, viewing any facts and inferences drawn from them in the light most favorable to Wilson, the nonmoving party. See Evans v. Technologies Applications & Serv. Co., 80 F.3d 954, 958 (4th Cir.1996). The questions we address in this case are matters of statutory interpretation based on essentially undisputed facts. As a result, our review is plenary. See United Energy Servs. v. Federal Mine Safety & Health Admin., 35 F.3d 971, 974 (4th Cir.1994).

Chase Manhattan Mortgage Corporation ("Chase") retained Defendants to foreclose on Wilson's property due to her alleged failure to make mortgage payments. Defendants wrote Wilson on September 2, 2003, to announce that she was in default on her loan and that they were preparing foreclosure papers. Defendants' letter stated that "[f]ederal law requires us to advise you that this letter is written pursuant to the provisions of the Fair Debt Collection Practices Act.... [T]his letter is an attempt to collect a debt." J.A. 43. Defendants also sent Wilson a "VALIDATION OF DEBT NOTICE" pursuant to the Act, which gave specific information concerning "the amount of the debt," the "creditor to whom the debt is owed," and the procedure for validating the debt. J.A. 44. The notice, however, expressly stated that Defendants were not "debt collectors" or acting in connection with the collection of a "debt." J.A. 44. Shortly after receiving the letter, Wilson wrote Defendants to dispute the debt and to request that they verify it with Chase.

On September 11, 2003, Defendants commenced foreclosure proceedings. One week later, Wilson's attorney advised Defendants that he represented Wilson and that Defendants should only communicate with him regarding the dispute. Nevertheless, on October 6, 2003, Defendants' "Sales Department" wrote directly to Wilson, not her attorney, to inform her that the foreclosure sale of her home would go forward on October 17, 2003. The letter again stated that it was an attempt to collect a debt. J.A. 45.

On October 9, 2003, Wilson's attorney requested a complete statement of Wilson's account indicating all interest, late charges and other charges, the interest rate, and all payments since the inception of the mortgage. In what Defendants claim was a response to Wilson's attorney, Defendants wrote directly to Wilson on October 15, 2003, providing the "amount to reinstate the above account," a balance of payments due, and instructions that any funds paid should be by cashiers check made payable to Chase and sent to Defendants. J.A. 47. As with previous letters, the letter stated "This notice is an attempt to collect a debt." J.A. 47. Prior to completing the foreclosure, Chase and Wilson resolved their dispute.

In 2004, Wilson commenced this action, alleging that Defendants violated the Act by failing to verify the debt, by continuing collection efforts after she had contested the debt, and by communicating directly with her when they knew she was represented by counsel. Defendants moved to dismiss the complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief could be granted, arguing that they were not acting in connection with a "debt" and that they were not "debt collectors" as those terms are defined by the Act.

The district court treated the motion as one for summary judgment because, in addition to the pleadings, it considered an affidavit and exhibit submitted by Defendants showing that the law firm was acting as a substitute trustee on a deed of trust when it communicated with Wilson. The district court granted summary judgment in favor of Defendants, ruling that "[t]rustees foreclosing on a property pursuant to a deed of trust are not `debt collectors' under the [Act]," J.A. 153, and that "actions taken by a trustee in foreclosing on a property pursuant to a deed of trust may not be challenged as [Act] violations," J.A. 154.

II.

Because we believe the district court misinterpreted the scope of the Act, and conclude that trustees, including attorneys, acting in connection with a foreclosure can be "debt collectors" under the Act, we reverse and remand.

A.

To be a "debt collector," there must first be a "debt." The Act defines a "debt" as:

any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes whether or not such obligation has been reduced to judgment.

15 U.S.C.A. § 1692a(5) (West 1998).

We disagree with Defendants' argument that they were not acting in connection with a "debt." Defendants notified Wilson that she was in "default in [her] Deed of Trust Note payable to the Lender... [and] that the Lender [had] accelerated the debt." J.A. 43 (emphasis added). Defendants informed Wilson that her failure to make mortgage payments entitled Chase to immediate payment of the balance of her loan, as well as fees, penalties, and interest due. These amounts are all "debts" under the Act, because they were "obligation[s] ... to pay money arising out of a transaction in which the ... property... which [is] the subject of the transaction [is] primarily for personal, family, or household purposes." 15 U.S.C.A. § 1692a(5).

Defendants contend that foreclosure by a trustee under a deed of trust is not the enforcement of an obligation to pay money or a "debt," but is a termination of the debtor's equity of redemption relating to the debtor's property. In essence, Defendants argue that Wilson's "debt" ceased to be a "debt" once foreclosure proceedings began. Defendants rely on reported and unreported district court decisions, including Hulse v. Ocwen Federal Bank, FSB, 195 F.Supp.2d 1188 (2002), which reasoned that "foreclosing on a deed of trust is an entirely different path [than collecting funds from a debtor]. Payment of funds is not the object of the foreclosure action. Rather, the lender is foreclosing its interest in the property." Id. at 1204; see also Heinemann v. Jim Walter Homes, Inc., 47 F.Supp.2d 716, 722 (N.D.W.Va.1998) (stating that, to the extent the pro se complaint could be read to allege violation of the Act within the statute of limitations, the Act would not apply "[s]ince the trustees were not collecting on the debt at that time but merely foreclosing on the property pursuant to the deed of trust"), aff'd, 173 F.3d 850 (4th Cir.1999) (unpublished table decision).

We disagree. Wilson's "debt" remained a "debt" even after foreclosure proceedings commenced. See Piper v. Portnoff Law Assocs., 396 F.3d 227, 234 (3d Cir. 2005) ("The fact that the [Pennsylvania Municipal Claims and Tax Liens Act] provided a lien to secure the Pipers' debt does not change its character as a debt or turn PLA's communications to the Pipers into something other than an effort to collect that debt."). Furthermore, Defendants' actions surrounding the foreclosure proceeding were attempts to collect that debt. See Romea v. Heiberger & Assocs., 163 F.3d 111, 116 (2d Cir.1998) (concluding that an eviction notice required by statute could also be an attempt to collect a debt); Shapiro & Meinhold v. Zartman, 823 P.2d 120, 124 (Colo.1992) ("[A] foreclosure is a method of collecting a debt by acquiring and selling secured property to satisfy a debt.").

Defendants' argument, if accepted, would create an enormous loophole in the Act immunizing any debt from coverage if that debt happened to be secured by a real property interest and foreclosure proceedings were used to collect the debt. We see no reason to make an exception to the Act when the debt collector uses foreclosure instead of other methods. See Piper, 396 F.3d at 236 ("We agree with the District Court that if a collector were able to avoid liability under the [Act] simply by choosing to proceed in rem rather than in personam, it would undermine the purpose of the [Act].")(internal quotation marks omitted).

Furthermore, in this case, Defendants' October 15 letter to Wilson contained a specific request for money to "reinstate the above account" even after the foreclosure proceedings began. J.A. 47. The letter instructed Wilson to pay the amount, over half of which was for foreclosure fees, by cashiers check made payable to Chase and to send it...

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