For Whom the Door Knocks…

By: Jennifer M. Monty, Esq.

Statistics show that over 40% of homeowners in foreclosure never speak with their servicer prior to the filing of a foreclosure action.  Door-knocking, the practice of sending out a person to the homeowner’s residence to deliver a loss mitigation package, is one way servicers attempt to reach out to borrowers.  A recent decision by the United States Court of Appeals for the Seventh Circuit may change servicer’s use of door-knocking or set new standards.

Case Background

Camille Gburek filed suit against her servicer and a door-knocking company, alleging that both the servicer and door-knocking company violated the Fair Debt Collection Practices Act (“FDCPA”).  The FDCPA is a consumer protection statute enacted to protect consumers from abusive, deceptive or unfair debt-collection practices.

At issue in the case were three communications:

1. A letter from the servicer to Gburek offering loss mitigation options and requesting financial information. The letter contained the FDCPA warning language that the letter was an attempt to collect a debt.

2. A letter from the door-knocking company offering loss mitigation options and attempting to open communications between Gburek and the servicer.  In the letter, the door-knocking company stated that it was not a debt collector.  The door-knocking company provided its phone number to answer any questions.

3. The communication from the servicer to the door-knocking company to enlist their services.

Grubek, through her lawsuit, claimed that all three communications violated the FDCPA.  The lawsuit alleged violations for using deceptive means to obtain personal information, communicating directly with Grubek even though she had an attorney, and communicating with the door-knocking company without Grubek’s consent.

The servicer filed a motion to the court that the case be dismissed, claiming that the communications were not attempts to collect a debt, and therefore not subject to the FDCPA.  The trial court granted the motion to dismiss, and Grubek appealed. The appellate court overruled the trial court finding that Grubek made sufficient allegations for violations of the FDPCA.

The appellate court focused on several factors.  Even though the letters did not include a demand for payment, the court noted that Gburek’s mortgage loan was in default and the servicer’s letter offered to discuss foreclosure alternatives, once she provided financial information.  The court held that such a communication was in connection with an attempt to collect a debt.  The court viewed the door-knocking company’s letter under the same light—a communication made to induce the debtor to settle a debt.  Finally, the court held that the communications between the servicer and the door-knocking company was a communication in connection with the collection of a debt.

The case will now be remanded to the trial court to hear the issues regarding the alleged FDCPA violations.

Moving Forward

The use of door knocking companies or programs continues to improve the chances of speaking with a borrower before foreclosure.  However, a servicer must be careful when using a door-knocking company.  All communications with a homeowner must follow the requirements of the FDPCA.  When a homeowner has an attorney, all communications must go through the attorney and not directly with the homeowner.  When using an outside company or vendor, particular caution must be taken and any information about the homeowner should not be shared with any third party, without the homeowner’s permission.

If the proper program is developed, door-knocking can be an effective way to reach borrowers.  However, if the program violates the FDPCA, the benefits of communicating with the borrower may be overshadowed by litigation.

If you have any questions on this information, please contact Jennifer M. Monty, Esq., an associate focused on litigation & defense within the Real Estate Default Group located in the Cleveland office of Weltman, Weinberg & Reis Co., LPA. Jennifer can be reached at 216.685.1136 or via email at jmonty@weltman.com.