Facts: A homebuyer obtains a mortgage secured by a trust deed on their property. The buyer defaults on their mortgage payments. The trustee mails the buyer a notice of default (NOD) stating the amount to be paid by the buyer to avoid foreclosure. The buyer fails to cure the default and the trustee sells the property at a nonjudicial foreclosure sale.

Claim: The buyer seeks money losses under the Fair Debt Collection Practices Act (FDCPA), claiming the trustee is a debt collector under the FDCPA since the trustee’s actions to retake and resell the security constitute an attempt to collect money from the buyer.

Counter claim: The trustee claims the buyer cannot seek recovery under the FDCPA since the trustee’s function is to repossess the security for the mortgage holder, not collect debt from the buyer.

Holding: A California court of appeals holds the trustee is not a debt collector under the FDCPA since the trustee’s role is to enforce the mortgage holder’s security interest by reselling the property, not to collect money from the buyer. [Ho v. ReconTrust Company (October 19, 2016)_CA4th_]

Editor’s note — In a nonjudicial foreclosure, also called a trustee’s sale, the property is sold at a public auction by the trustee as authorized under the power-of-sale provision in the trust deed. Thus, the purpose of a nonjudicial sale is to retake and resell the security to the highest bidder. On completion of the sale, the trustee collects money from the highest bidder, not from the original buyer.

Further, no deficiency judgment may be collected from the buyer following a nonjudicial foreclosure sale as the foreclosure extinguishes the entire debt.

For more on trustee’s sales, see Real Estate Finance, “Chapter 44: The nonjudicial foreclosure process.”