Submitted June 5, 2015
Submission Vacated June 8, 2015
Resubmitted September 3, 2015 Pasadena, California
from the United States District Court for the Central
District of California D.C. No. 2:10-cv-00741-GW-SS George H.
Wu, District Judge, Presiding Argued and
Nicolette Glazer, Esq. (argued), Law Offices of Larry R.
Glazer, Century City, California, for Plaintiff-Appellant.
Margaret M. Grignon (argued) and Kasey J. Curtis, Reed Smith
LLP, Los Angeles, California; Carolee A. Hoover and David C.
Powell, McGuire Woods LLP, San Francisco, California; for
T. Kirby, Jr. and Martin T. McGuinn, Kirby & Mcguinn, A
P.C., San Diego, California, for Amici Curiae United
Trustee's Association, California Bankers Association,
American Legal and Financial Network, Arizona Trustee
Association and California Mortgage Association.
Meredith Fuchs, General Counsel, To-Quyen Truong, Deputy
General Counsel, John R. Coleman, Assistant General Counsel,
Nandan M. Joshi and Thomas M. McCray-Worrall, Attorneys,
Consumer Financial Protection Bureau, Washington, D.C., for
Amicus Curiae Consumer Financial Protection Bureau.
Before: Alex Kozinski and Consuelo M. Callahan, Circuit
Judges, and Edward R. Korman, [*] Senior District Judge.
Debt Collection Practices Act
in part and vacating in part the district court's
dismissal of an action for failure to state a claim, the
panel held that the trustee of a California deed of trust
securing a real estate loan was not a "debt
collector" under the Fair Debt Collection Practices Act.
damages under the FDCPA, the plaintiff alleged that the
trustee of the deed of trust on her property sent her a
notice of default and a notice of sale that misrepresented
the amount of debt she owed. The plaintiff also sought to
rescind her mortgage transaction under the Truth in Lending
with the Fourth and Sixth Circuits, and agreeing with the
California Courts of Appeal, the panel held that the trustee
was not a "debt collector" subject to damages under
the FDCPA because the trustee was not attempting to collect
money from the plaintiff. The panel held that the object of a
non-judicial foreclosure in California is to retake and
resell the security on the loan. Thus, actions taken to
facilitate a non-judicial foreclosure, such as sending the
notice of default and notice of sale, are not attempts to
collect "debt" as that term is defined by the
FDCPA. The panel wrote that following a trustee's sale,
the trustee collects money from the home's purchaser, not
the original borrower. Because the money collected from a
trustee's sale is not money owed by a consumer, it is not
"debt." Accordingly, the foreclosure notices were
an enforcement of a security interest, rather than general
debt collection under 15 U.S.C. § 1692a(6). Citing
Sheriff v. Gillie, 136 S.Ct. 1594 (2016), the panel
declined to create a conflict with state foreclosure law in
its interpretation of the ambiguous term "debt
collector." Accordingly, the panel affirmed the
dismissal of the FDCPA claim.
panel held that even though the district court twice
dismissed the plaintiff's TILA rescission claim and she
did not replead it in her third complaint, it was preserved
for appeal because the district court instructed her that she
would be required to allege the ability to repay the loan in
order to state a rescission claim. The panel held that under
Merritt v. Countrywide Fin. Corp., 759 F.3d 1023
(9th Cir. 2014), decided after the district court's
dismissal, a mortgagor need not allege the ability to repay
in order to state a rescission claim. Accordingly, the panel
vacated the dismissal of the TILA claim and remanded for
consideration of the claim in light of Merritt.
panel affirmed the dismissal of other claims in a
concurrently filed memorandum disposition.
Korman dissented in part and concurred in part. He wrote that
the only reasonable reading of the FDCPA is that a trustee
pursuing a non-judicial or judicial foreclosure proceeding is
a debt collector because both proceedings are intended to
obtain money by forcing the sale of the property being
foreclosed upon. He also wrote that the FDCPA does not
interfere with California's arrangement for conducting
non-judicial foreclosures in a way that would justify
nullifying the protections that the FDCPA provides, and the
FDCPA's preemption section provides ample room for the
operation of California law. Judge Korman concurred in the
remand to the district court for consideration of the TILA
rescission cause of action.
KOZINSKI, Circuit Judge.
principal question in this appeal is whether the trustee of a
California deed of trust is a "debt collector"
under the Fair Debt Collection Practices Act (FDCPA).
Thi Ho bought a house in Long Beach using funds she borrowed
from Countrywide Bank. The loan was secured by a deed of
trust. A deed of trust involves three parties. See
Yvanova v. New Century Mortg. Corp., 62 Cal.4th 919,
926-27 (Cal. 2016) (explaining California deeds of trust).
The first party is the lender, who is the trust beneficiary.
The second party is the borrower-trustor, who holds equitable
title to the property. The third party is the trustee, an
agent for both the lender and the borrower who is authorized
to sell the property if the debtor defaults. Id. at
927. In this case, the lender was Countrywide, the borrower
was Ho and the trustee was ReconTrust.
Ho began missing loan payments, ReconTrust initiated a
non-judicial foreclosure. See id. at 926-27
(detailing California's complex statutory procedure
governing non-judicial foreclosures). As the first step in
this process, ReconTrust recorded a notice of default and
mailed this notice to Ho. See Cal. Civ. Code §
2924(a)(1). The notice advised Ho that she owed more than
$20, 000 on her loan and that she "may have the legal
right to bring [her] account in good standing by paying all
of [her] past due payments" to Countrywide. The notice
also advised Ho that her home "may be sold without any
court action." Ho did not pay up. ReconTrust then took
the second step in the process by recording and mailing a
notice of sale. See Cal. Civ. Code §§
2924(a)(3). This notice advised Ho that her home would be
auctioned "unless [she took] action to protect [her]
property." Following the trustee's sale, ReconTrust
would deliver the deed to the purchaser and the proceeds of
the sale to Countrywide. See 5 Harry D. Miller &
Marvin B. Starr, Cal. Real Est. § 13:1 (4th ed.
2015). Ho would then lose both possession of the house and
her right of redemption. Id. §§ 13:266,
filed this lawsuit alleging that ReconTrust violated the
FDCPA by sending her notices that misrepresented the amount
of debt she owed. See 15 U.S.C. § 1692e(2)(A).
Ho also sought to rescind her mortgage transaction under the
Truth in Lending Act (TILA) on the ground that the defendants
had perpetrated fraud against her. See 15 U.S.C.
§ 1635(a). The district court twice dismissed Ho's
rescission claim without prejudice, and Ho did not replead
it. The district court then granted ReconTrust's motion
to dismiss Ho's FDCPA claims.
appeals, arguing that ReconTrust is a "debt
collector" because the notice of default and the notice
of sale constitute attempts to collect debt. Because both
notices threatened foreclosure unless Ho brought her account
current, she reasonably viewed those documents as an
inducement to pay up. Ho also argues that her TILA rescission
claim should be reinstated on appeal because our circuit
clarified the requirements for such a claim between the
district court's dismissal and this appeal. See
Merritt v. Countrywide Fin. Corp., 759 F.3d 1023,
1032-33 (9th Cir. 2014).
FDCPA subjects "debt collectors" to civil damages
for engaging in certain abusive practices while attempting to
collect debts. See §§ 1692d-f, 1692k. The
statute's general definition of "debt
collector" captures any entity that "regularly
collects or attempts to collect, directly or indirectly,
debts owed or due or asserted to be owed or due [to]
another." § 1692a(6). Debt is defined as an
"obligation . . . of a consumer to pay money."
FDCPA imposes liability only when an entity is attempting to
collect debt. 15 U.S.C. § 1692(e). For the purposes of
the FDCPA, the word "debt" is synonymous with
"money." 15 U.S.C. § 1692a(5). Thus,
ReconTrust would only be liable if it attempted to collect
money from Ho. And this it did not do, directly or otherwise.
The object of a non-judicial foreclosure is to retake and
resell the security, not to collect money from the borrower.
California law does not allow for a deficiency judgment
following non-judicial foreclosure. This means that the
foreclosure extinguishes the entire debt even if it results
in a recovery of less than the amount of the debt. Cal. Civ.
Code § 580d(a); see Burnett v. Mortg. Elec.
Registration Sys., Inc., 706 F.3d 1231, 1239 (10th Cir.
2013) ("[A] non-judicial foreclosure does not result in
a mortgagor's obligation to pay money--it merely
results in the sale of property subject to a deed of
trust."); Alaska Tr., LLC v. Ambridge, No.
S-14915, 2016 WL 852265, at *16 (Alaska Mar. 4, 2016)
(Winfree, J., dissenting) (noting that non-judicial
foreclosure "does not in and of itself collect a debt,
but rather calls for the vesting and divesting of title to
real property according to the parties' prior
agreement" (internal quotation marks omitted)). Thus,
actions taken to facilitate a non-judicial foreclosure, such
as sending the notice of default and notice of sale, are not
attempts to collect "debt" as that term is defined
by the FDCPA.
prospect of having property repossessed may, of course, be an
inducement to pay off a debt. But that inducement exists by
virtue of the lien, regardless of whether foreclosure
proceedings actually commence. The fear of having your car
impounded may induce you to pay off a stack of accumulated
parking tickets, but that doesn't make the guy with the
tow truck a debt collector.
holding today affirms the leading case of Hulse v. Ocwen
Federal Bank, 195 F.Supp.2d 1188, 1204 (D. Or. 2002),
which held that "foreclosing on a trust deed is an
entirely different path" than "collecting funds
from a debtor." We acknowledge that two circuits have
declined to follow Hulse. Glazer v. Chase Home
Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013); Wilson
v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378-79
(4th Cir. 2006). But we find neither case persuasive. The
Fourth Circuit in Wilson was more concerned with
avoiding what it viewed as a "loophole in the Act"
than with following the Act's text. 443 F.3d at 376. We
rely on policy to help interpret statutory language; we
don't make it ourselves. The Sixth Circuit's decision
in Glazer rests entirely on the premise that
"the ultimate purpose of foreclosure is the payment of
money." 704 F.3d at 463. But the FDCPA defines debt as
an "obligation of a consumer to pay
money." 15 U.S.C. § 1692a(5) (emphasis added).
Following a trustee's sale, the trustee collects money
from the home's purchaser, not from the original
borrower. Because the money collected from a trustee's
sale is not money owed by a consumer, it isn't
"debt" as defined by the FDCPA.
most plausible reading of the statute is that the foreclosure
notices were "the enforcement of [a] security
interest" as contemplated by section 1692f(6) rather
than "debt collection" as contemplated by section
1692a. The FDCPA's general definition of "debt
collector, " contained at section 1692a(6), applies to
entities that "regularly collect or attempt to
collect, directly or indirectly, debts owed or due or
asserted to be owed or due [to] another." Entities that
qualify as debt collectors under this general definition are
debt collectors for purposes of the entire statute. However,
the FDCPA also includes a narrower definition of "debt
collector." This narrower definition of the term
"also includes" entities whose principal business
purpose is "the enforcement of security interests."
15 U.S.C. § 1692a(6). This provision would be
superfluous if all entities that enforce security interests
were already included in the definition of debt collector for
purposes of the entire FDCPA. But the relationship between
sections 1692a(6) and 1692f(6) makes sense if some security
enforcers are debt collectors only for the limited purposes
of section 1692f(6). All parties agree that ReconTrust is a
debt collector under the narrow definition. Ordinarily,
section 1692f(6) would protect a consumer against the abusive
practices of a security enforcer who does not fit the broader
definition of a debt collector. But that doesn't matter
in our case because ReconTrust is not accused of conduct
prohibited by section 1692f(6). The sole question here is
whether ReconTrust is a debt collector under the general
definition-that is, whether ReconTrust "regularly
not hold that the FDCPA intended to exclude all
entities whose principal purpose is to enforce security
interests. If entities that enforce security interests engage
in activities that constitute debt collection, they are debt
collectors. We hold only that the enforcement of security
interests is not always debt collection. We agree with the
dissent that the terms are not mutually exclusive. But they
also aren't coextensive.
therefore agree with a central premise of Wilson and
Glazer: An entity does not become a general
"debt collector" if its "only role in the debt
collection process is the enforcement of a security
interest." Wilson, 443 F.3d at 378; see
Glazer, 704 F.3d at 464. But from there our paths
diverge. We view all of ReconTrust's activities as
falling under the umbrella of "enforcement of a security
interest." Under California's non-judicial
foreclosure statutes, ReconTrust could not conduct the
trustee's sale until it sent the notice of default and
the notice of sale. If ReconTrust can administer a
trustee's sale without collecting a debt, it must be able
to maintain that status when it takes the statutorily
required steps to conduct the trustee's sale. The right
to "enforce" the security interest necessarily
implies the right to send the required notices; to hold
otherwise would divorce the notices from their
Glazer court rejected this view, noting that it
couldn't think of anyone other than repossessors
"whose only role in the collection process is the
enforcement of security interests." 704 F.3d at 464.
Glazer explained that a "lawyer principally
engaged in mortgage foreclosure does not meet this criteria
[sic], for he must communicate with the debtor regarding the
debt during the foreclosure proceedings, " but this is
"not so for repossessors, who typically
'enforce' a security interest--i.e.,
repossess or disable property--when the debtor is not
present, in order to keep the peace." 704 F.3d at 464.
We find this distinction unpersuasive. The FDCPA itself
recognizes that repossessors will communicate with
debtors. Enforcement of a security interest will
often involve communications between the forecloser and the
consumer. When these communications are limited to the
foreclosure process, they do not transform foreclosure into
notices at issue in our case didn't request payment from
They merely informed Ho that the foreclosure process had
begun, explained the foreclosure timeline, apprised her of
her rights and stated that she could contact Countrywide (not
ReconTrust) if she wished to make a payment. These notices
were designed to protect the debtor. They are
entirely different from the harassing communications that the
FDCPA was meant to stamp out. Thus, we agree with the
California Courts of Appeal that "giving notice of a
foreclosure sale to a consumer as required by the
[California] Civil Code does not constitute debt collection
activity under the FDCPA." Pfeifer ...