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Sixth Circuit Decision Highlights the Risk of Initiating Collection Remedies During the FDCPA’s Validation Period

Section 1692g(a) of the FDCPA mandates the sending of a “validation” notice within five days of a debt collector’s initial communication with a consumer. Section 1692g(b) provides that if the consumer provides timely, written invocation of his or her rights, the debt collector must cease all of its collection efforts until it has complied with the Act by mailing to the consumer verification of the debt, a copy of a judgment, and/or the name and address of the original creditor, depending on which right has been invoked.

Both the text of the FDCPA and the applicable case law make it clear that Section 1692g does not provide a grace period. A debt collector is free to collect during the thirty-day period as long as it does not overshadow or contradict the consumer’s thirty-day rights. But what if the debt collector initiates a process that is not readily stopped if the consumer makes a timely request for validation? Whether easy or difficult, the Act mandates that the debt collector cease its collection efforts until the required information has been mailed to the consumer.

In Scott v. Trott Law, P.C., the defendant initiated non-judicial foreclosure proceedings during the consumer’s thirty-day FDCPA validation period.  Starting two weeks after sending its FDCPA notice, Trott took multiple actions to initiate the foreclosure on Scott’s home, including: arranging a sheriff’s sale for a Foreclosure of Mortgage by Advertisement; preparing a Notice of Mortgage Foreclosure Sale to be posted on the premises of Scott’s home and published for four consecutive weeks in a newspaper;  contacting the local newspaper to schedule the posting and the four publications of the Notice; and mailing a copy of the Notice to Scott. However, Scott sent a letter to Trott, timely disputing the validity of the debt and claiming he was current on his mortgage, and that all payments had been made in accordance with a court order entered in prior litigation over the delinquency of this mortgage.

Trott claimed that after receiving the Dispute Letter it ceased collection of the debt and contacted its client to confirm the debt’s validity. However, the Notice of Sale was posted on the premises three days after Trott received Scott’s dispute, and it was published in the newspaper three times following Trott’s receipt of the dispute.  Trott did not send Scott a verification of the debt, and Scott sued to enjoin the sale.  Trott filed a response opposing the injunction, and just hours prior to the hearing on the motion for the preliminary injunction, Scott filed for Chapter 13 bankruptcy. The scheduled sheriff’s foreclosure sale did not take place, and the motion for an injunction was stayed pending verification of the debt.

Scott alleged, inter alia, that Trott had violated Section 1692g(b) of the FDCPA by failing to cease its collection efforts until it had mailed to him verification of the debt. The district court granted summary judgment, holding that Trott had ceased collection of the debt because Trott itself performed no more activity. The Sixth Circuit reversed, holding that Trott, by not taking steps to stop the actions already in motion, had failed to cease its collections efforts as required by the Act.

Under Michigan law, a party executing a Foreclosure of Mortgage by Advertisement must publish a detailed Notice for four consecutive weeks in a county newspaper and post the Notice in a conspicuous place on the premises. The Court of Appeals held that this publication of notice “qualifies under the FDCPA as an ‘initial communication’ with the debtor.”

Trott claimed that it was not the one performing the activity at issue, arguing that “[t]he publications and posting, that Scott attempts to bootstrap to Trott, were ordered by Trott prior to the receipt of the [Dispute Letter] and were actions by third-parties other than Trott.”  Although the district court accepted that argument, the Court of Sppeals did not:

The issue before us is whether FDCPA’s requirement that a debt collector must “cease collection of the debt” after receiving a Dispute Letter required Trott to stop the subsequent newspaper publications from appearing, stop the home posting from occurring, and stop the sheriff’s sale from taking place. We find that it does. To read the FDCPA as the district court did would render the Dispute Letter a nullity.

This decision from the Sixth Circuit makes it clear that upon timely invocation of a debtor’s validation rights a debt collector must do more than cease its own collection activities.  It must also put a stop to all collection activities and processes that it has put into motion.

It follows then that the statute imposes on the “debt collector” an obligation to stop the “collection of the debt.” . . . We find that, at a minimum, “collection of the debt”” in a statutorily created process such as Michigan’s foreclosure by advertisement must include any activities that attempt to satisfy the essential statutorily required elements of that process.

The Sixth Circuit held that a timely dispute letter must “stop the clock” on the initiated foreclosure, expanding the duty to cease to include ensuring that agents and independent contractors halt the furtherance of the collection activity.   This decision could have significant impact in cases where a debt collector sues the debtor during the validation period. The receipt of a timely dispute or validation request could require recall of process that is out for service, cancellation of appearance day hearings, and possibly even the expansion of the time period for the debtor to respond to the lawsuit.  In the wake of this decision debt collectors may need to rethink the advisability of pursuing litigation or other remedies during the FDCPA’s validation period.