How Does The FDCPA Apply To My Mortgage Company?

How Does The FDCPA Apply To My Mortgage Company?

How Does The FDCPA Apply To My Mortgage Company?The FDCPA (Fair Debt Collection Practices Act) applies to debt collectors so most consumers, and most lawyers, think it does not apply to mortgage companies.

After all, a mortgage company is not a debt collector, is it?

It may be.

Definition of a debt collector under the FDCPA

A company that receives your debt from some other company and the moment it receives your debt, the debt is allegedly in default.  And the new company regularly collects delinquent debt (its own if it buys it) for others.  For example, the typical mortgage servicing situation.

If this happens, typically we are dealing with a “debt collector”.

Let’s break this down with an example of Bank of America

  • Your loan is originally with Chase Home Mortgage;
  • You get behind in your loan;
  • Your loan is either sold to, or the “servicing” rights are transferred to, Bank of America who you now deal with.

So, is Bank of America a debt collector?

The loan did not start with Bank of America.

You were behind on your loan — which means you are in default (you can read the contract/note to see what a default is defined as).

So when Bank of America got the loan, it was in default.

Bank of America is most likely a debt collector.  As it collects many loans that are delinquent and were delinquent when it got them.  And it collects loans that are owned by other companies.

Another example with Green Tree (Ditech)

  • Your loan was originally with Bank of America;
  • Bank of America has been “dumping” hundreds of thousands of loans into companies with an even worse reputation than Bank of America — for example Green Tree (now Ditech);
  • When the change happens, Green Tree/Ditech says you are 30 days late on your mortgage;
  • You really are not late but Green Tree/Ditech, due to having such shoddy records, says that you are late.

Is Green Tree a debt collector?

Not the original creditor.

You are “allegedly” in default so that counts under the FDCPA.

Green Tree or Ditech received an “allegedly” defaulted loan so it is a debt collector under the FDCPA.

“OK, so my mortgage company is a debt collector under the FDCPA — what good does that do me?”

This has a number of beneficial meanings:

  • The FDCPA is, for the most part, a “strict liability” statute which means if your debt collector mortgage company violates the law, you have a legitimate lawsuit against it;
  • Many of the favorite defenses of mortgage companies — such as the “Statute of Frauds” (we’ll discuss in a later article) — have no meaning under the FDCPA because they are Alabama state law defenses.  The FDCPA is a federal law and so it does not “care” about Alabama defenses;
  • The FDCPA can award you statutory damages even if the violation of the law did not harm you (almost all violations do result in harm though);
  • You can get compensated for the harm caused by the mortgage company — think of what a wrongful foreclosure will do to someone — the harm it will cause; and
  • The mortgage company can be forced to pay your attorneys over $400 per hour  for representing you — this is very motivating to them to fix the problem and settle the case with you.

“So what do I do if I live in Alabama and think my mortgage company may be a debt collector under the FDCPA?”

A couple of things to consider:

  1. Research more about the FDCPA — what it gives you, how it protects you, etc. (See below for further research).
  2. Contact a lawyer who is experienced in both the FDCPA and mortgage litigation — if you would like to talk to us you can call us at 205-879-2447 or fill out our online contact form.

Keep in mind this powerful law and if it applies to you, then use it to the full extent possible.

Best wishes!

John Watts

For further research:


  1. gaynell ferguson says:

    I was just reading your article the FDCPA and Mortgage companies , if your mortgage has been transferred 3 times from the orginal company do they have a legal right to collect on the orginal loan should it become delinquent?
    Also have you any info on the class action suit lexus nexus?

    • John Watts says:

      I’m not sure I understand who you are asking about having the right to collect on the original loan.

      If you mean the original mortgage company then it depends. Did they sell the loan or just the “servicing” rights? Servicing rights are the rights to collect on the loan, send statements, make sure the insurance is correct, etc.

      Sometimes when it comes time to foreclose, etc., the original company gets the loan back.

      Now if we are talking about whether the third or fourth company in the line can collect — the answer is if they really have the servicing rights or they really own the loan they can.

      I’m not sure that answers your question so let me know if I have missed your question.

      I don’t know about the Lexis Nexis lawsuit — what is it about?

      Thanks for your comment!

      John Watts

  2. Linda Cia says:

    I have a 1st and second ok. Then on the 3rd I borrowed 87k and 4th 60k, yet the 60k loan was cash backed by me with a CD which matured to 74K. Bank of the West sent my 3rd and 4th to a collection agency, if I did not remind Bank of the West about my collaterized 60k CD they would not have realized it, what happened is they sold the loan to Jonathan Neal & Assoc and then Bank of the West said thay ‘BACK DATED THE LOAN’ and since 2009 i have not got a bill from anyone and i asked bank of the west for my 60K cd and now they tell me i owe them $105k on the 3rd.
    Can the Banks back date and take a loan back after probably our government paid them too>??? please advise

    • John Watts says:


      I’m not sure I know what you mean exactly when you say “Backdated” — was an original document changed? Was the original note or mortgage lost?

      It sounds like you need to get with an attorney in your state to figure out what has happened. If you are in Alabama call us at 205-879-2447.

      John Watts

  3. Mary lou says:

    We pay our mortgage before the 15th of the month yet they average calling 5 times a day I feel this harassment

    They are the mortgage company so not a third party

    Where do we stand with that It is Ditech mortgage

    • John Watts says:

      Mary Lou,

      One question is was your loan current when DiTech started servicing it? A lot of folks have recently been transferred to DiTech from somewhere else. So DiTech could be a debt collector under the FDCPA (Fair Debt Collection Practices Act).

      Calling 5 times a day certainly sounds like harassment to me also

      Part of this will depend on where you live.

      If you are in Alabama, call us at 205-879-2447 and we can walk you through options here.

      If outside of AL, get with a local consumer protection attorney. Some states basically have their own version of the FDCPA and it applies even if the FDCPA does not — so it might give you greater protection than in other states.

      But we do have some options for you if you are in Alabama — thanks for your comment….

      John Watts

  4. Tim Hyde says:

    My mortgage was sold to Quantum servicing while it was technically in default. I was struggling to make the payments but I was behind when it was sold. The house eventually was foreclosed on and sold at auction for less than my original loan with the original lender. I received a notice of audit that states that the deficiency is the amount of a judgement which the trustee could seek should he or she choose to do so and was legally able to do so. I found out that at the time my mortgage was sold to Quantum, my original lender Severn Bancorp was in trouble and had federal regulators intervene and they sold off some mortgages. My question is, is it possible that my original lender sold my mortgage for a lesser amount to Quantum Servicing ? and if so, would the forclosure proceeds only have to cover what they paid for the mortgage ? Thank you.

    • John Watts says:


      I can only answer this from the perspective of Alabama so if you are not in Alabama the rules can be completely different. And even in Alabama it makes sense to get your actual documents to a lawyer so we can give you an actual opinion. These are just some general thoughts for you.

      Quantum would likely be a debt collector so we would want to see if it did anything wrong leading up to and including the foreclosure.

      I’m not sure what you mean by “a notice of audit” — who sent you this? Sounds like a letter where it is being pointed out you could be collected on (even sued on) a deficiency.

      It certainly is possible your mortgage was sold for a lesser amount to Quantum by Severn — in fact almost certainly. This doesn’t normally impact how much you owe. So a mortgage of $200,000 could be sold for $20,000 and you still owe the $200,000.

      Then when a foreclosure happens, we look at the amount owed (not what the company paid for the mortgage) and what the foreclosure sale generated to see if a deficiency.

      So in my (extreme) example of a $200,000 mortgage sold to Quantum for $20,000 — then a foreclosure happens for $50,000, you would face a deficiency of $150,000 (200-50).

      Now in this extreme of example there are other factors we would look at — for example the foreclosure sale is too low, etc.

      If you are in Alabama give us a call (205-879-2447) — ask for Randi and she’ll then set us up a call.

      If you are in another state definitely get with a lawyer there — foreclosures and mortgages can be complicated and don’t always make sense so best to check out your options.


      John Watts

  5. Miguel says:

    I have Chase bank as a lender for many years, until I decided to refinance. I was current with my monthly payments, including escrow payments. Chase sold my mortgage to a debt collector (Statebridge)to whom I started to pay the same monthly amount as I was paying Chase for several years. Last month, Statebridge sent me its monthly statement in which my monthly payment was significantly increased. It went from $1704.64 to $2375.16. Obviously, this impacted my ability to pay or disturbed my spending routine.

    I called them and their rational was rooted on “escrow increased” supported by a table that did not made sense to me. So I disputed their calculation and submitted them mine. To make a long story short, Statebridge came up with a very rude statement: “…we have doubled your monthly escrow, based on our policies. There is not a way to reduced it; so just pay or we report you to credit report agencies…”

    I have a couple of questions for you: a)is it a good business practice, within the banking industry, to sell a mortgage to a collection agency? b) is it there any place I could complaint about these predatory lending practices?


    • John Watts says:


      Thank you for your comment and question.

      First, I’m sorry you are dealing with this. It is not only annoying but you have some company threatening your credit and ultimately your home.

      Second, it is legal (at least for Alabama mortgages) to sell the mortgage and debt (the note) to a company, even a debt collector.

      Third, you can complain to the CFPB in Washington.

      Fourth, my suggestion is you need to be very aggressive (and nice but firm) with this company to get to the bottom of this. This situation is the perfect example of why and when we use RESPA letters to a mortgage company.

      Request for information letters ask the mortgage company to explain what is going on — in your case with the escrow.

      Notice of error letters let your mortgage company know that you know they made an error and you want it fixed.

      These letters, sent to the proper address and in the proper way, will do one of several things for you:

      1. Let you know your mortgage company is right — which I doubt they are but it is theoretically possible.

      2. Your mortgage company will realize it has made an innocent mistake or it has been caught making an intentional error and will fix it so you don’t sue them.

      3. Your mortgage company won’t respond to the letters which tells you a lot and should lead to you suing the mortgage company.

      Bottom line is you need to get to the bottom of this and figure out what is going on. Very unusual for your payment to jump up that high.

      We have sued mortgage companies for doing things like this in the past as they often take a “you are guilty of whatever we say” when they take over your loan.

      So definitely check out your rights — get with a consumer protection lawyer in your state who understands RESPA and mortgages. If you are in Alabama, we will be happy to help.

      205-879-2447 — ask for Randi.

      Thanks and best wishes….

      John Watts

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