The Fair Debt Collection Practice Act - How It Affects Foreclosure

By Author: Nick Adama
Total Articles: 197
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The Fair Debt Collection Practices Act (FDCPA) is a federal law that has been created to protect consumers of credit from predatory actions of collection agencies which are pursuing a debt. It provides important protections for homeowners and puts restrictions and limitations on what actions collection agencies may take.

When a lender or its attorneys violates the Fair Debt Collection Practices Act, foreclosure victims may bring up these abuses in their answer to a foreclosure lawsuit. Although the Act may not be applicable in every situation, many mortgages have been transferred to third parties, investors, other lenders, and servicing companies, under the appropriate circumstances, and the law would come into play.

Disclosure notice requirements, dispute processes, and even stopping collection phone calls on a debt are covered by the Act. The law also permits credit consumers to initiate lawsuits directly against a collection agency in order to obtain monetary damages for abuses of the FDCPA, and it can be surprisingly easy for collectors to violate the Act.

When a mortgage goes into default, the current ...
... owner of the loan, however, will not count as a collection agency when it is pursuing collection on its own debt. It must use its own official business name and must not be primarily in the business of pursuing debts. In the case of the mortgage lending business over the past decade, very many loans are transferred to a new owner once they go into default.

The Fair Debt Collection Practices Act applies when a mortgage loan is sold or transferred and another lender begins debt collection attempts in the case of foreclosure. It is important for homeowners to remember, though, that if the lender before the default holds onto the loan, the FDCPA does not apply. But if the bank transfers the loan somewhere else, the law will apply to the new owner.

Once the lender or servicing company changes after default, though, the new company which purchases the debt is considered a collection agency and must comply with the provisions of the Fair Debt Collection Practices Act. Any law office that the lender hires to pursue the debt or file the foreclosure paperwork in court must also follow the FDCPA and may face liability for any failures.

Homeowners have a number of rights under this law. If they inform the collection agency (or lender or law firm) in writing of their desire not to be contacted regarding the debt, any further attempts to call are a violation of the Act. As well, attorney fees that are charged to a mortgage that are not specifically authorized in the original documents is a violation of the Act.

The FDCPA also outlines abuses due to harassment, abuse of borrowers, misleading representations, and debt validation, among other provisions. Other rights protected under the Act can be found by reading the Act itself or consulting with an attorney familiar with the law in detail. There are also many websites that go into further detail about this particular federal law.

Each violation of the Act may create liability on the part of the collection agency for any actual damage suffered by the borrowers, $1,000 per offense, and costs of any action to defend the foreclosure lawsuit, initiate a foreclosure lawsuit, and attorneys fees. In effect, there are countless ways to violate the law, and many collection agencies do not care enough about it to follow it as outlined.

When fighting back against a foreclosure complaint, homeowners may want to use violations of the FDCPA (and they may be surprisingly easy to uncover) to offset the judgment the bank is seeking. Violations may be included as counterclaims in answering a complaint. The law firm retained by the bank also counts as a collection agency and may be brought into the lawsuit for its own violations of the Act.
Nick writes for the ForeclosureFish website, which gives homeowners the advice and resources they need to avoid foreclosure by themselves and fight back against the bank's lawsuit. The site describes numerous options to save a house, including foreclosure refinancing, deed in lieu, repayment plans, stopping a foreclosure sale, bankruptcy, and more. Visit the site on the web to read more about how you can avoid foreclosure and eviction, repair your credit, and establish a long term financial plan once a financial crisis is over: http://www.foreclosurefish.net/