Mortgage deficiency is a debt under debt collection law

By Richard A. Roth, J.D.

A debt collector that sued a consumer for a deficiency judgment after a mortgage foreclosure and foreclosure sale was collecting a debt, a U.S. District Court Judge has decided. Contrary to the arguments of the debt collector, the amount owed did arise from a transaction and did meet the Fair Debt Collection Practices Act definition of “debt,” the judge decided in what he said was a case of first impression (Baggett v. Law Offices of Daniel C. Consuegra, P.L. (M.D. Fla., 3:14-cv-1014-J-32PDB, April 15, 2015).

The foreclosure suit resulted in a judgment that, after the property was sold, the homeowner still owed nearly $65,000, and the debt collector then acquired the promissory note and sued to collect the deficiency. The homeowner countered with a suit alleging several different FDCPA violations. The debt collector attempted to convince the judge that the FDCPA did not apply because the mortgage deficiency did not constitute a debt.

Transaction. The key to the debt collector’s position was that the obligation to pay the deficiency did not arise from a transaction, which is a requirement for what is a debt under the FDCPA. The payment obligation arose from the deficiency determination in the foreclosure suit, not the underlying promissory note, the debt collector claimed.

The judge disagreed, saying that the deficiency could not be separated from the note. The foreclosure judgment was for payment on the debt represented by the note, the judge decided, and no deficiency action would exist without the note. In other words, the obligation to pay the deficiency arose from the transaction evidenced by the note, and a suit to collect the deficiency was debt collection activity.

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