UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C.
20580
Division
of Credit Practices
Bureau of Consumer Protection
|
|
October 8, 1992
Marty Novak, Esq.
Hilgers & Watkins
San Jacinto Center, Suite 1300
98 San Jacinto Boulevard
Austin, Texas 78701
Dear Mr. Novak:
This is in response to your inquiry of August l9, 1992 posing
several questions regarding the Texas statute(1)
governing non-judicial deed of trust foreclosure procedures as
they relate to the Fair Debt Collection Practices Act ("Act"
or "FDCPA").
Your first question concerns certain statements set out in the
Commission staff commentary on the Act as follows: (1) "A
debt collector does not violate these provisions [of the Fair
Debt Collection Practices Act] by providing public notices that
are required by state law as a prerequisite to enforcement of
a security interest in connection with a debt" (Comment 806(4)-2
at 53 Fed. Reg. 50105); and (2) "[T]ransmission of a notice
to a consumer that is required by law as a prerequisite to enforcing
a contractual obligation is not a communication in connection
with the collection of any debt, and thus does not confer Section
809 notice-and-validation rights on the consumer" (Comment
809(a)-6 at 53 Fed. Reg. 50108).
You further note that in the last two years there have been several
cases in appellate courts concerning instances in which demands
for performance by the debtor within less than the 30-day notice
and validation period provided by the Act have resulted in violations
of the Act, notwithstanding the fact that the communications in
question contained the warnings required by the Act. See e.g.,
Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991) and
Miller v. Payco-General American Credits, Inc., 943 F.2d
482 (4th Cir. 1991). The court decisions are based on the premise
that contradictory demands for actions by the debtor within a
shorter time than stated in the notice of rights under the Act
defeat the purpose of the Act. While the cited cases do not involve
statutory notices, you are concerned that there is an apparent
shift in the interpretation of the Act concerning contradictory
time frames for action by the debtor.
You ask whether the staff continues to support the above quoted
statements. The answer is yes. The cases cited in your letter
deal not with statutory requirements that are a prerequisite to
enforcement of security interests or contractual obligations,
but rather with language created solely by the debt collectors
themselves which allegedly interferes with the consumer's rights
of dispute and debt verification under the Act. The holdings of
these cases are clearly inapposite to the statements set out at
pages 50105 and 50108 of the Staff Commentary. Some of these statements
are distillations of a series of informal staff opinions responding
to inquiries from attorneys which discuss the various provisions
of the Act. Some of the opinions deal with foreclosures or other
enforcement requirements of various states, including Texas.
You state that the Texas statutes governing non-judicial deed
of trust foreclosures establish minimum time frames of less than
thirty days concerning required notice of sales and/or opportunity
to cure defaults under a promissory note. Specifically, Texas
Property Code § 51.002 provides that a nonjudicial foreclosure
sale must occur on the first Tuesday of the month, and that notice
of the sale must be both posted at the courthouse door of the
county in which the real property is located and mailed by certified
mail to the debtor not less than twenty- one days prior to the
date of sale. The same statute provides that if the real property
is used as the debtor's residence, the debtor must be given at
least twenty days to cure the default before the entire debt is
due and notice of sale is given. At this time, there are no Texas
cases interpreting whether the 20-day cure period applies only
in situations involving the potential acceleration of a promissory
note for default or whether the same 20-day period would be applicable
when the promissory note had matured in accordance with its own
terms and not as a result of acceleration by statute or loans
secured by property other than the debtor's residence.
On the basis of the above description of the Texas statute, you
relate the following factual situations and pose questions based
on these factual situations.
Fact Situation No. 1:
A consumer loan secured by real property other than the residence
of the debtor goes into default because the borrower fails to
pay a regular installment. The promissory note provides for the
legally enforceable waiver under state common law of all demands,
notices of default, notices of intent to accelerate, and notices
of acceleration. Notwithstanding the waivers, the noteholder engages
legal counsel (qualifying as a debt collector under the Act) to
give written notice of default and five days opportunity to cure
prior to the acceleration of the maturity of the promissory note.
The debt collector's letter demands immediate payment of the delinquency,
and includes a statement that if the default is not paid within
five days, the note holder shall thereafter immediately accelerate
the note and instruct the trustee under the deed of trust securing
the note to post the real property for sale on the next available
foreclosure date. Because of the timing of the letter, the five
days notice of default and 21-day statutory posting/notice period
for foreclosure would permit the note holder (acting through the
debt collector) to give notice of default, accelerate the note,
post the property for foreclosure sale, and conduct the foreclosure
sale in less than thirty days from the initial letter to the consumer.
The debt collector's letter contains the warnings and notices
required under the Act.
Question 2: Does the debt collector's letter violate the
Act on the grounds that the debtor does not have the full thirty
days allotted under the Act to dispute the debt or request verification
prior to the threatened acceleration and foreclosure?
Answer. If any of the steps recited in the attorney collector's
letter are, by statute, a pre- requisite to enforcing the statute,
the debt collector's letter would not violate the Act. It is the
staff's position that if a notice sent by an attorney collector
in connection with a non-judicial foreclosure is required by statute
as a condition precedent to the enforcement of a contractual obligation
between a creditor and a debtor, whether by judicial or non-judicial
process, the Act does not apply. Consequently the 30-day period
prescribed in Section 809 would have no application to the non-judicial
foreclosure actions required by Texas statute.
Question 3: Would the actual performance of any of these
acts (i.e., posting the property for sale or conducting the sale
as trustee) by the debt collector as agent for the noteholder
violate the Act?
Answer: No. These acts are required by state statute in order
to enforce a contract. When an attorney collector engages in activities
that are required by statute as a condition precedent to the enforcement
of a contractual obligation between the creditor and a debtor,
whether by judicial or non-judicial legal process, the attorney
is not engaged in the sort of traditional debt collection activities
that Congress intended to cover when it enacted the FDCPA.
Question 4: Would the Act be violated if the noteholder chose
to rely on the waivers, and the debt collector sent a letter notifying
the debtor of acceleration of the debt and the posting of the
property for sale?
Answer: The letter of the attorney debt collector evidently asserts
waiver rights granted by the contract (notice of default, intent
to accelerate and acceleration) as well as instructs the trustee
to post the real property for sale as required by statute. Since
the letter asserts actions to be taken that are a pre-requisite
to enforcement of the secured note required by law, such as posting
of the property for sale, the letter would not be covered by the
Act. However, a letter sent to a debtor making demand for payment
and asserting that certain actions will be taken absent payment,
when such actions are not required by statute, is a traditional
dunning letter which would be subject to the Act and trigger the
notice and validation requirements of Section 809.
Fact Situation No. 2:
A noteholder engages outside legal counsel (qualifying as a debt
collector under the Act) to make demand and collect on a consumer
note secured by real property constituting the residence of the
debtor. The debt collector, pursuant to the state statute, sends
written notice to the debtor identifying the default and providing
twenty days opportunity to cure before the noteholder accelerates
maturity of the promissory note. The notice warns the debtor that
if the debtor fails to cure during the twenty days, the noteholder
(through the debt collector) will, on the twenty-first day, accelerate
the note and post the property for public foreclosure pursuant
to the terms of the state statute and the deed of trust. The debt
collector's letter contains the Act's required statement of the
debtor's rights to dispute the debt within thirty (30) days.
Question 5: Is the debtor entitled to a full thirty days
to dispute or request verification of the debt prior to acceleration
of the note and posting for sale, or may the debt collector accelerate
the promissory note and post for foreclosure upon the expiration
of the 20-day period granted under state statute if cure is not
made within the twenty days?
Answer: Statements of the attorney collector set out in the letter
appear to cite actions that are required by statute. If this is
the case, i.e. if the notice to the delinquent debtor is statutorily
required as a condition precedent to the enforcement of the non-judicial
legal process, such contacts are not covered by the Act. Consequently,
the notice and validation requirements of Section 809 are not
triggered and the 30 day window of opportunity to dispute and
verify does not apply.
Conversely, if a collector attorney acting on the creditor's
behalf sends a letter to the debtor demanding payment, and such
letter is not required by state statute, the attorney is engaging
in debt collection activities and is subject to the Act because
a demand letter is a communication in connection with the collection
of a debt and triggers the notice and validation requirements
required by Section 809.
Question 6: If the debt collector may accelerate after twenty
(20) days notice, does the Act require the debt collector to extend
the state statute's 30-day notice of default and opportunity to
cure if the consumer disputes the debt and/or requests verification
under the Act during the 20- day period without curing the default?
Answer: No. The statements of actions recited by the attorney
debt collector appear to be actions required by statute as a predicate
to enforcing a contractual obligation.
Accordingly, none of the provisions the Act have any application
to the attorney's action in enforcing the note secured by real
property constituting the residence of the debtor.
I hope his information is helpful. Please note that these comments
reflect an unofficial staff opinion and, as such, are not binding
on the Commission. They do, however, represent the staff's present
enforcement position.
Sincerely,
Roger J. Fitzpatrick
Attorney
(1) Your letter states that a copy of
the Texas Property Code at 51.002 is attached. No copy of this
statute was included with your letter.
|