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Home Foreclosures: 8.10.5 Attorney Fees

Defendants often seek to “divide and conquer” by offering a settlement that does not include attorney fees, or includes an inadequate proposal for fees creating a conflict between the homeowner and the homeowner’s attorney. This can be a significant problem in foreclosure defense cases where a settlement offer from the defendant may simply provide for a modification of the loan (e.g., write down of principal and/or reduction of interest) without any cash payment.

Home Foreclosures: 8.11.2 Historical Context

The law of preemption has changed over time and was curtailed significantly by the Dodd-Frank Wall Street Reform Act of 2010 (hereinafter the Dodd-Frank Act).819 The Dodd-Frank reforms became effective on July 21, 2011. Prior to that date, the rules governing preemption for national banks differed somewhat from those governing preemption for federal savings associations.820

Home Foreclosures: 8.11.3 Current Preemption Statutory Standard

In 2010, Congress passed the Dodd-Frank Act, which cut back on federal banking agencies’ power to preempt state law. It abolished the OTS, and adopted more restrictive standards for preemption of state law, applicable both to the National Bank Act and to HOLA. Under the current standard, which became effective on July 21, 2011, the NBA and HOLA permit preemption of state consumer finance laws only if:

Home Foreclosures: 8.11.4 The OCC’s Current Preemption Regulation

Any analysis of the scope or application of the Dodd-Frank Act’s preemption provision is complicated by the preemption rules published by the Office of the Comptroller of the Currency (OCC). On July 21, 2011, the OCC published amendments to its 2004 preemption rules,834 purporting to conform them to the Dodd-Frank Act’s requirements. There are, however, significant questions about the scope and validity of the OCC’s 2011 preemption regulations.

Home Foreclosures: 8.11.5 Applying the 2011 OCC Preemption Standard to Servicing and Foreclosure Laws

Most preemption challenges to state foreclosure and servicing laws have arisen under the broader preemption regulations of the Office of Thrift Supervision (OTS). Now that the OTS preemption rule has been abrogated by statute and replaced by the 2011 OCC regulation, there should be fewer preemption challenges. As discussed above, the 2011 OCC preemption regulation appears to exceed the scope of preemption allowed by the Dodd-Frank Act.845 But even under that regulation, many state laws will still pass muster.

Home Foreclosures: 8.11.6.1 OTS Rule and Mortgage Servicing

The Dodd-Frank Act abolished the Office of Thrift Supervision (OTS), and transferred its functions to the OCC. It also set a single standard for preemption of state law for both national banks and federal savings associations, and the OCC’s 2011 preemption rule now applies to both types of lending institutions.

Home Foreclosures: 8.11.6.2 Preemption of State Preforeclosure Requirements

A number of decisions examine the OTS preemption issue as it relates to section 2923.5 of California’s Civil Code, which imposes requirements on a mortgage holder or servicer before it can initiate foreclosure. Specifically, before foreclosing, section 2923.5 requires a holder to contact the borrower by phone or in person, to assess the borrower’s ability to avoid foreclosure through some type of loss mitigation, and to refer the borrower to a HUD-certified housing counselor.887

Fair Debt Collection: 5.2.1 Text of FDCPA §§ 1692b, 1692a(7)

FDCPA § 1692b provides:

Any debt collector communicating with any person other than the consumer for the purpose of acquiring location information about the consumer shall—

(1) identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer;

(2) not state that such consumer owes any debt;

Fair Debt Collection: 5.2.2 Overview

FDCPA § 1692b establishes a detailed, narrow exception to section 1692c(b)’s general prohibition of third-party contacts,7 and allows debt collectors in some circumstances to contact third parties to obtain information about the consumer’s residence, residential telephone number, and place of employment.8 The burden of proof is on the debt collector to prove the exception applies.9

Fair Debt Collection: 5.2.3 The Legislative History

Congress, in 1977, repeatedly amended the location information provision to arrive at the current procedures for a debt collector to obtain a consumer’s contact information. According to the 1977 Senate report:

Fair Debt Collection: 5.2.6 FDCPA § 1692b Only Applies Where Purpose Is to Acquire Location Information

The FDCPA § 1692b exception to the general prohibition of third-party contacts applies only if the collector is attempting to obtain location information, defined as “a consumer’s place of abode and his telephone number at such place, or his place of employment.”37 The location purpose of a debt collector’s contacts with third parties may be indicated by the debt collector disclosing the purpose,38 by asking for the consumer’s contact information,39 or b

Fair Debt Collection: 5.2.9.2 Exception Where Consumer Is Deceased

When the consumer is deceased, the collector may wish not just to locate the contact information of the individual responsible for paying the estate’s debts, but to identify who that individual is. In seeking the identity of that person, the question is raised whether the collector can ask third parties who is responsible for handling the financial affairs of the deceased, or whether this conflicts with the FDCPA § 1692b(2) prohibition that the collector not state to third parties that the consumer owes a debt.

Fair Debt Collection: 5.2.10 Limits on the Number of Location Communications

FDCPA § 1692b(3) provides that, if a debt collector is communicating with a third party to locate a consumer, the collector cannot “communicate with any such person more than once unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information.” 63

Fair Debt Collection: 5.2.11 No Communication Allowed If Consumer Is Represented

FDCPA § 1692b(6) provides that a debt collector seeking a consumer’s location information from a third party shall not do so after it learns the consumer is represented by an attorney with regard to the debt and knows or can readily ascertain the attorney’s name and address.76 The collector instead must communicate only with the attorney for location information, unless the attorney fails to respond within a reasonable period of time to the debt collector’s communication.77 This requirement may prev

Fair Debt Collection: 5.2.12 Enforcement of FDCPA § 1692b

The Seventh Circuit, in Todd v. Collecto, Inc., found that the third party receiving the contact does not have standing to enforce FDCPA § 1692b or the related provision of section 1692c(b).79 While recognizing that some FDCPA provisions, such as section 1692f, protect third parties, the Seventh Circuit refused to find that a son who had been contacted for his mother’s location could obtain FDCPA relief for the debt collector revealing his mother’s debt to him.