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From Banking and Finance Law Daily, August 13, 2018

Mortgage servicer’s property inspection contractor not a debt collector

By Richard A. Roth, J.D.

A company that performed inspection services for a mortgage servicer, which were required to satisfy requirements of the Federal Housing Administration, was not engaged in debt collection under the Fair Debt Collection Practices Act, the U.S. Court of Appeals for the Seventh Circuit has determined. As a result, the hang tags the company left on homeowners’ front doors asking them to call the lender did not need to include the consumer disclosures required by the FDCPA (Schlaf v. Safeguard Property, LLC, Aug. 10, 2018, Ripple, K.).

Inspection activities. According to the opinion, the homeowners fell behind on the payments due on their FHA-insured mortgage. FHA regulations say that if mortgage payments are 45 days or more past due and the servicer is unable to make direct contact with the homeowners, the servicer must make an inspection to determine if the property still is occupied. Green Tree Servicing contracted with Safeguard Property to perform these inspections.

Green Tree required Safeguard, as part of its inspection, to leave a hang tag on the outside doorknob of each home. The tag, which was left on the complaining homeowners’ door during each of as many as 10 inspections, asked them to call Green Tree and gave Green Tree’s telephone number. It made no reference to Safeguard.

One of the homeowners said that he spoke with Safeguard’s inspector at least once, but the inspector did not identify his employer. The homeowner also said that the telephone number on the tag was for Green Tree, that he understood Safeguard’s business was property protection, and that he did not know if Safeguard collected debts.

Was this debt collection? The question facing the court was whether Safeguard’s inspection activities constituted debt collection. Specifically, was Safeguard indirectly collecting the mortgage debt for Green Tree?

There are two distinct definitions of "debt collector" in the FDCPA, the court noted. A company that uses mail, telephone calls, or interstate commerce as part of a business that has, as its "principal purpose," the collection of debts is a debt collector. Safeguard did not fit that test because its services included many other tasks that are part of protecting homes with delinquent mortgages.

The other definition applies to a company that "regularly collects or attempts to collect, directly or indirectly," debts that are owed to someone else. The homeowners claimed that leaving the hang tag was indirect debt collection.

No, it wasn’t. Hanging a tag on a doorknob is not attempting to collect a debt, the court decided. Safeguard’s practices essentially prevented the company from forming any relationship with the homeowners, and the tag included no information about the debt. No payment demand ever was made. The company was operating more "as a messenger than as an indirect facilitator of debt collection."

The court noted that to the extent the tag was a communication with the homeowners, it was not "in connection with" collecting a debt. The tags were left in connection with a property inspection, the court observed.

Safeguard inspected properties based on a computer generated list furnished by Green Tree that supplied no information about the mortgage, the court said. The company had no discretion about which properties to inspect, and its inspectors had no authority to discuss the mortgage debt with the homeowners. Its activities were too far removed from Green Tree’s debt collection efforts to constitute indirect debt collection, according to the court.

The case is No. 17-2811.

Attorneys: Daniel A. Edelman (Edelman, Combs, Latturner & Goodwin, LLC) for Andrew Schlaf. Amy M. Kunzer (Tribler Orpett & Meyer, P.C.) for Safeguard Property, LLC.

Companies: Safeguard Property, LLC

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