Indiana Commercial Foreclosure Law

Investors Not Protected By FDCPA

In my November 16, 2006 post “Worried About The Fair Debt Collection Practices Act?” I explained that the Fair Debt Collection Practices Act (“FDCPA”) generally does not apply to commercial foreclosures or the collection of business debts.  The recent decision by the Indiana Court of Appeals in Baird v. ASA Collections, 2009 Ind. App. LEXIS 961 (Ind. Ct. App. 2009) (.pdf) supports this conclusion. 

HOA dues.  Plaintiff ASA Collections filed a lawsuit against defendant Baird to recover past-due homeowner’s association fees and dues.  Baird filed a counterclaim against ASA based upon alleged FDCPA violations.  The issue was whether the FDCPA applied to the case.  Since the FDCPA regulates “consumer debts,” which are defined at 15 U.S.C. § 1692(a)(5) as obligations “primarily for personal, family, or household purposes,” one might expect homeowner’s association dues to fall under the FDCPA.  Indeed in Newman v. Boehm, 119 F.3d 477 (7th Cir. 1997), the Seventh Circuit held that the plaintiff’s delinquent condominium dues and assessments constituted “consumer debts” under the FDCPA. 

Investor.  Baird was distinguishable from Newman, however.  Baird had purchased six vacant lots at a tax sale for investment purposes.  Baird sold the lots to purchasers who wanted access to recreational facilities on the property.  Baird never built on the lots, and she did not reside in any structure in the development.  Instead, she bought the properties and sold them to various owners once the land was developed.  Thus Baird’s FDCPA counterclaim failed as a matter of law:

The evidence demonstrated that Baird may be characterized as an investor rather than a consumer in the transaction, and she has failed to show that the dues and fees that were assessed involved a “consumer debt” within the meaning of the FDCPA.

Only consumer debts.  Baird provides additional comfort for lenders and their counsel involved in Indiana commercial foreclosure litigation.  In general, the regulations and pitfalls of the FDCPA should not apply to the collection of an investment-related debt - even if the underlying nature of the debt seems to be personal in nature.  The FDCPA is designed to protect consumers, not investors.

WORRIED ABOUT THE FAIR DEBT COLLECTION PRACTICES ACT?

Do you work for a financial institution that collects debts?  If so, do you know whether the Fair Debt Collection Practices Act, 15 U.S.C. 1692 (the “Act”), regulates what you do?  Do you fear that your collection practices might subject you or your company to liability?  Relax.  The Act generally does not apply to commercial foreclosures or the collection of commercial debts.  (See my 11-1-06 article “Just What Is Commercial Foreclosure Law?” for more background.)

Personal, Family or Household Purposes.  The Act focuses on obligations arising from consumer transactions.  Bass v. Stolper, et al., 111 F.3d 1322 (7th Cir. 1997).   “Debt,” for purposes of the Act, is defined as an obligation to pay money arising out of a transaction that is “primarily for personal, family, or household purposes…” 15 U.S.C. 1692a(5).  A nice article in the American Law Reports Federal explains the concept in detail: “What Constitutes ‘Debt’ for Purposes of Fair Debt Collection?”  159 A.L.R. FED. 121 (2000).  Even individual guarantors of an obligation do not fall within the scope of the Act if the guaranty is part of a commercial transaction.  See the Federal Trade Commission’s website for more discussion.  My practice and blog are dedicated primarily to commercial deals, not consumer loans.  If you’re in the same boat, then essentially all you need to know about the Act is (1) it’s out there, (2) a violation of it is a bad thing, but (3) it generally doesn’t apply to you. 

Behave Appropriately. The legal industry has some very creative attorneys, as well as judges inclined to protect debtors.  There are gray areas in the law.  Legal principles evolve, as can the interpretation of statutes like the Act.   For instance, the ALR article cites a case from Mississippi in which a commercial debt essentially was transformed into a consumer debt covered by the Act when the debt collector made “harsh, abusive, foul, obscene, indecent, uncouth, violent, threatening, intimidating, and harassing” phone calls to the debtor.  So don’t be reckless.  Be mindful of the spirit of the Act, which Congress designed to eliminate abusive, deceptive, and unfair debt collection practices.   

As a general proposition, however, you need not sweat the details of the Act if you’re confident that you’re dealing with a commercial transaction.  When in doubt, however, follow the Act.  Or, contact your lawyer for advice.  In the past few years, there has been plenty of litigation involving the application and enforcement of the Act, so recent case law exists to help you or your lawyer determine whether your actions may be regulated.