UNITED STATES OF AMERICA
October 8, 1992
Marty Novak, Esq.
Dear Mr. Novak:
This is in response to your inquiry of August l9, 1992 posing several questions regarding the Texas statute(1) governing non-judicial deed of trust foreclosure procedures as they relate to the Fair Debt Collection Practices Act ("Act" or "FDCPA").
Your first question concerns certain statements set out in the Commission staff commentary on the Act as follows: (1) "A debt collector does not violate these provisions [of the Fair Debt Collection Practices Act] by providing public notices that are required by state law as a prerequisite to enforcement of a security interest in connection with a debt" (Comment 806(4)-2 at 53 Fed. Reg. 50105); and (2) "[T]ransmission of a notice to a consumer that is required by law as a prerequisite to enforcing a contractual obligation is not a communication in connection with the collection of any debt, and thus does not confer Section 809 notice-and-validation rights on the consumer" (Comment 809(a)-6 at 53 Fed. Reg. 50108).
You further note that in the last two years there have been several cases in appellate courts concerning instances in which demands for performance by the debtor within less than the 30-day notice and validation period provided by the Act have resulted in violations of the Act, notwithstanding the fact that the communications in question contained the warnings required by the Act. See e.g., Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991) and Miller v. Payco-General American Credits, Inc., 943 F.2d 482 (4th Cir. 1991). The court decisions are based on the premise that contradictory demands for actions by the debtor within a shorter time than stated in the notice of rights under the Act defeat the purpose of the Act. While the cited cases do not involve statutory notices, you are concerned that there is an apparent shift in the interpretation of the Act concerning contradictory time frames for action by the debtor.
You ask whether the staff continues to support the above quoted statements. The answer is yes. The cases cited in your letter deal not with statutory requirements that are a prerequisite to enforcement of security interests or contractual obligations, but rather with language created solely by the debt collectors themselves which allegedly interferes with the consumer's rights of dispute and debt verification under the Act. The holdings of these cases are clearly inapposite to the statements set out at pages 50105 and 50108 of the Staff Commentary. Some of these statements are distillations of a series of informal staff opinions responding to inquiries from attorneys which discuss the various provisions of the Act. Some of the opinions deal with foreclosures or other enforcement requirements of various states, including Texas.
You state that the Texas statutes governing non-judicial deed of trust foreclosures establish minimum time frames of less than thirty days concerning required notice of sales and/or opportunity to cure defaults under a promissory note. Specifically, Texas Property Code § 51.002 provides that a nonjudicial foreclosure sale must occur on the first Tuesday of the month, and that notice of the sale must be both posted at the courthouse door of the county in which the real property is located and mailed by certified mail to the debtor not less than twenty- one days prior to the date of sale. The same statute provides that if the real property is used as the debtor's residence, the debtor must be given at least twenty days to cure the default before the entire debt is due and notice of sale is given. At this time, there are no Texas cases interpreting whether the 20-day cure period applies only in situations involving the potential acceleration of a promissory note for default or whether the same 20-day period would be applicable when the promissory note had matured in accordance with its own terms and not as a result of acceleration by statute or loans secured by property other than the debtor's residence.
On the basis of the above description of the Texas statute, you relate the following factual situations and pose questions based on these factual situations.
Fact Situation No. 1:
A consumer loan secured by real property other than the residence of the debtor goes into default because the borrower fails to pay a regular installment. The promissory note provides for the legally enforceable waiver under state common law of all demands, notices of default, notices of intent to accelerate, and notices of acceleration. Notwithstanding the waivers, the noteholder engages legal counsel (qualifying as a debt collector under the Act) to give written notice of default and five days opportunity to cure prior to the acceleration of the maturity of the promissory note. The debt collector's letter demands immediate payment of the delinquency, and includes a statement that if the default is not paid within five days, the note holder shall thereafter immediately accelerate the note and instruct the trustee under the deed of trust securing the note to post the real property for sale on the next available foreclosure date. Because of the timing of the letter, the five days notice of default and 21-day statutory posting/notice period for foreclosure would permit the note holder (acting through the debt collector) to give notice of default, accelerate the note, post the property for foreclosure sale, and conduct the foreclosure sale in less than thirty days from the initial letter to the consumer. The debt collector's letter contains the warnings and notices required under the Act.
Question 2: Does the debt collector's letter violate the Act on the grounds that the debtor does not have the full thirty days allotted under the Act to dispute the debt or request verification prior to the threatened acceleration and foreclosure?
Answer. If any of the steps recited in the attorney collector's letter are, by statute, a pre- requisite to enforcing the statute, the debt collector's letter would not violate the Act. It is the staff's position that if a notice sent by an attorney collector in connection with a non-judicial foreclosure is required by statute as a condition precedent to the enforcement of a contractual obligation between a creditor and a debtor, whether by judicial or non-judicial process, the Act does not apply. Consequently the 30-day period prescribed in Section 809 would have no application to the non-judicial foreclosure actions required by Texas statute.
Question 3: Would the actual performance of any of these acts (i.e., posting the property for sale or conducting the sale as trustee) by the debt collector as agent for the noteholder violate the Act?
Answer: No. These acts are required by state statute in order to enforce a contract. When an attorney collector engages in activities that are required by statute as a condition precedent to the enforcement of a contractual obligation between the creditor and a debtor, whether by judicial or non-judicial legal process, the attorney is not engaged in the sort of traditional debt collection activities that Congress intended to cover when it enacted the FDCPA.
Question 4: Would the Act be violated if the noteholder chose to rely on the waivers, and the debt collector sent a letter notifying the debtor of acceleration of the debt and the posting of the property for sale?
Answer: The letter of the attorney debt collector evidently asserts waiver rights granted by the contract (notice of default, intent to accelerate and acceleration) as well as instructs the trustee to post the real property for sale as required by statute. Since the letter asserts actions to be taken that are a pre-requisite to enforcement of the secured note required by law, such as posting of the property for sale, the letter would not be covered by the Act. However, a letter sent to a debtor making demand for payment and asserting that certain actions will be taken absent payment, when such actions are not required by statute, is a traditional dunning letter which would be subject to the Act and trigger the notice and validation requirements of Section 809.
Fact Situation No. 2:
A noteholder engages outside legal counsel (qualifying as a debt collector under the Act) to make demand and collect on a consumer note secured by real property constituting the residence of the debtor. The debt collector, pursuant to the state statute, sends written notice to the debtor identifying the default and providing twenty days opportunity to cure before the noteholder accelerates maturity of the promissory note. The notice warns the debtor that if the debtor fails to cure during the twenty days, the noteholder (through the debt collector) will, on the twenty-first day, accelerate the note and post the property for public foreclosure pursuant to the terms of the state statute and the deed of trust. The debt collector's letter contains the Act's required statement of the debtor's rights to dispute the debt within thirty (30) days.
Question 5: Is the debtor entitled to a full thirty days to dispute or request verification of the debt prior to acceleration of the note and posting for sale, or may the debt collector accelerate the promissory note and post for foreclosure upon the expiration of the 20-day period granted under state statute if cure is not made within the twenty days?
Answer: Statements of the attorney collector set out in the letter appear to cite actions that are required by statute. If this is the case, i.e. if the notice to the delinquent debtor is statutorily required as a condition precedent to the enforcement of the non-judicial legal process, such contacts are not covered by the Act. Consequently, the notice and validation requirements of Section 809 are not triggered and the 30 day window of opportunity to dispute and verify does not apply.
Conversely, if a collector attorney acting on the creditor's behalf sends a letter to the debtor demanding payment, and such letter is not required by state statute, the attorney is engaging in debt collection activities and is subject to the Act because a demand letter is a communication in connection with the collection of a debt and triggers the notice and validation requirements required by Section 809.
Question 6: If the debt collector may accelerate after twenty (20) days notice, does the Act require the debt collector to extend the state statute's 30-day notice of default and opportunity to cure if the consumer disputes the debt and/or requests verification under the Act during the 20- day period without curing the default?
Answer: No. The statements of actions recited by the attorney debt collector appear to be actions required by statute as a predicate to enforcing a contractual obligation.
Accordingly, none of the provisions the Act have any application to the attorney's action in enforcing the note secured by real property constituting the residence of the debtor.
I hope his information is helpful. Please note that these comments reflect an unofficial staff opinion and, as such, are not binding on the Commission. They do, however, represent the staff's present enforcement position.
Roger J. Fitzpatrick
(1) Your letter states that a copy of the Texas Property Code at 51.002 is attached. No copy of this statute was included with your letter.