CHICAGO - In what may be a defining decision for property preservation companies, a federal appeals panel has affirmed that property preservation companies are not acting as debt collectors when they leave a door hanger on a property they have serviced directing property owners who have defaulted on loans to contact a debt servicer or collector.
On Aug. 10, a three-judge panel of the U.S. Seventh Circuit Court of Appeals sided with Safeguard Property LLC in their dispute with a couple who clamed the company's actions had violated the Fair Debt Collection Practices Act (FDCPA.)
Safeguard is a vendor of Green Tree Servicing, and was hired to inspect the property held by Andrew and Wendy Schlaf after they defaulted on their loan.
During regular inspections, Safeguard left door hangers requesting the Schlafs contact Green Tree. The Schlafs then filed a lawsuit against Safeguard, complaining that the door hangers didn’t contain the required disclosures and language, thereby violating the FDCPA.
Safeguard argued they are not a debt collector. A federal judge in Chicago granted Safeguard summary judgment based on facts supporting that claim, prompting the Schlafs to appeal to the Seventh Circuit.
“The issue before the Seventh Circuit was whether Safeguard Property LLC was a debt collector under the FDCPA. More specifically, the Seventh Circuit was asked to decide whether Safeguard’s property preservation efforts, including leaving a door hanger with the loan servicer’s contact information, can fairly be considered 'attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another,' “ said Douglas Sargent, attorney and partner at Locke Lord in Chicago.
After the case was moved to the Seventh Circuit, appeals judges "determined that Safeguard’s property preservation activity was ‘too attenuated’ to constitute actionable conduct under the FDCPA. The court found that Safeguard leaving a door hanger with the loan servicer's contact information was 'more akin to that of a messenger than as an indirect facilitator of debt collection,' said Sargent.
As far as how the ruling will affect future similar complaints, Sargent added: “Although the Seventh Circuit cautioned that the case law in this area is not particularly ‘robust’ and what constitutes indirect debt collection will need to be determined on a case-by-case basis, as long as property preservation companies do not go further than Safeguard did in the Schlaf matter, they should be shielded from liability within the Seventh Circuit.”
“This decision matters,” said Locke Lord partner Ryan Holz, “because it appears to be a matter of first impression in the Seventh Circuit and it explains the factors to be considered in determining whether a property preservation company’s conduct should be held actionable under the FDCPA.
Because there is no bright-line rule and what constitutes indirect debt collection must be determined on a case-by-case basis, other courts will have to grapple with this question in the context of different surrounding circumstances.”
When asked to clarify what precedent has been set by the Seventh Circuit Court’s decision, Holz said: “The precedent established by this decision is that when a property preservation company leaves a door hanger that merely invites the homeowner to call the loan servicer, that conduct does not trigger FDCPA liability.
But the precedent is limited to those specific circumstances; anything beyond that could constitute a violation of the FDCPA. But beyond precedent, the decision also signals that there is a line between property preservation and debt collection activities, even if that line has not been fully defined.”
Holz said he would encourage property preservation companies "to properly train their representatives as to the limited role they are performing, as this decision suggests that more aggressive property preservation efforts run the risk of crossing the line into debt collection.”