Compliance Bulletin

Court Decision Makes Collecting a Deficiency a Risky Business
April 6, 2015

In a case that was just decided, a court of appeal held that a bank could be held liable for violating debt collection practices laws by trying to collect a deficiency from a borrower after nonjudicial foreclosure if in doing so the lender implies that the debt is legally enforceable. In this case the proceeds from the first lienholder’s foreclosure sale were insufficient to pay off the second lienholder’s loan. The second lienholder, together with a collection agency, attempted to collect a portion of the unpaid amount but without outright stating that the borrowers were legally bound to pay. That was potentially enough for the court of appeal to trigger liability under the federal Fair Debt Collection Practices Act and other laws, even if the creditor did not take legal action. For more information, please see CBA’s Regulatory Compliance Bulletin.