Colorado’s century-old public-trustee foreclosure system, the only one of its kind in the country, could be gutted if a Pueblo man wins his case before the U.S. Supreme Court, legal experts say.
The court this month took up the case of Dennis Obduskey, 63, who says lawyers representing banks in the foreclosure process are little different than debt collectors who pester consumers to pay up on an overdue credit card or other unpaid bills.
At issue is whether nonjudicial foreclosures such as those in Colorado and 32 other states are subject to the federal Fair Debt Collection Practices Act, a law that has a broad array of protections for consumers against haranguing debt collectors. Colorado allows for judicial foreclosures, but those are rarely used on residential properties.
“If the Supreme Court rules that FDCPA applies to foreclosures, either Colorado’s public trustee system will need to be re-written, or the whole process will be abandoned for a judicial foreclosure system,” according to attorney Keith Gantenbein, who had worked for several years at now-closed Castle Stawiarski, one of the state’s largest foreclosure law firms. “So many things that are allowed now would not be allowed under FDCPA. It will shake the industry to its core.”
Until now, foreclosures were not considered a debt collection in the strictest terms and, by extension, the lawyers representing banks were not deemed debt collectors, so they weren’t subject to any of the FDCPA rules or liable to its sanctions.
But Obduskey, whose Bailey home was the target of multiple foreclosure attempts by Wells Fargo beginning in 2009 during the height of the nation’s economic collapse, didn’t know FDCPA didn’t apply and claimed the unsuccessful efforts were harassment and a violation of his rights under the federal law. Some of those efforts included several notices to contact his mortgage servicer hanging from his front doorknob and a number of ignored requests for proof the bank had the right to foreclose.
Obduskey had been a travel manager whose income took a nosedive in 2008 because of the financial crisis, eventually strapping him with three mortgage payments.
The bank had offered, then rescinded, a number of unsolicited loan modifications that Obduskey said he accepted, but he continued to grapple with the bank about how his payments were applied. He even complained to the Federal Trade Commission when it took public testimony about alleged misdeeds by banks during the mortgage crisis.
“This has never been about the house,” Obduskey told The Post. “It’s about being treated honestly and fairly; something Wells (Fargo) and other banks have failed to do with me and with tens of thousands of homeowners for years.”
Obduskey finally sued in U.S. District Court in Denver in 2015, claiming the lawyers Wells Fargo hired to foreclose on him had violated a number of FDCPA requirements, such as stopping all collection efforts once a consumer challenges the debt. FDCPA requires collectors to validate a debt, something Colorado’s foreclosure laws specifically lack. He still owns the house, but has since relocated to Pueblo.
Obduskey said among the things he requested, but never received, were records showing his payment history, how much he owed, and precisely who it was he owed the money to and how it was they obtained the mortgage.
Although all those items are required under FDCPA when a consumer asks for them, Colorado’s public-trustee system doesn’t. Instead, the process merely requires a law firm to sign a declaration that their client is the proper holder of the mortgage debt without ever having to prove it.
“If we learn anything from this case, it’s the need to clean up the Colorado law regardless of what (the Supreme Court) rules,” Obduskey told The Denver Post in an email. “If the FDCPA doesn’t protect the consumer, to provide some baseline when a state creates a law that ignores the logical rights of consumers, who does look out for for them?”
The law firm –- McCarthy & Holthus –- has said it is merely an agent for the banks and not an actual debt collector. Also, the bank wasn’t owed the money when it acquired the mortgage, so it can’t be considered a debt collector. It is merely looking to take possession of the property in lieu of missed payments, according to court records. Debt collectors, the law firm has said, actively seek to collect cash. In Colorado, they are seeking to have the public trustee auction the property to pay off the bank, which most times was the one to win the auction.
McCarthy & Holthus is based in San Diego, with offices in eight Western states, including Colorado. The firm, which has an office in Centennial, did not respond to efforts seeking comment.
The federal court in Denver ruled against Obduskey in 2016, as did the 10th Circuit Court of Appeals in 2018, declaring that the FDCPA does not apply to mortgage debt and foreclosures. That’s because, according to opinions issued in both cases, mortgages are different than other types of debt because there is a security interest tied to the loan –- the house — and trustees only collect what a house brings at auction, not any shortage.
Obduskey appealed to the U.S. Supreme Court, noting that other federal circuits have ruled differently — as has the Colorado Supreme Court — saying nonjudicial foreclosures are indeed covered by FDCPA. The Supreme Court accepted the case in June 2018 and oral arguments were heard in Washington, D.C., on Jan. 7.
A decision isn’t expected for several months.
It’s possible the court might limit its ruling to just Colorado, experts say, which would leave the broader question of nonjudicial foreclosures unresolved.
“I think the court is most likely to make this a narrow opinion, perhaps even limited to Colorado’s unique laws,” said Danielle D’Onfro, an associate professor of law at Washington University Law in St. Louis and an expert on the U.S. Supreme Court. “There are bigger issues here, but they did not really come up at argument, so I am not expecting to see an expansive opinion.”
Colorado’s public-trustee system is the only one of its kind in the country, where an appointed or elected trustee oversees the entire foreclosure process. Other states that don’t require a lawsuit to foreclose use private trustees. Colorado at one time led the nation in the number of foreclosures filed. Since then, the number of foreclosures has fallen dramatically with some public trustee offices having difficulty funding operations.
If the high court rules for Obduskey, FDCPA would prohibit a number of things that are normal under Colorado law, specifically the variety of notices that are sent out to potential lienholders of a mortgage. Colorado requires this so that lienholders can attempt to purchase a property at auction. But FDCPA prohibits communicating with anyone other than the debtor.
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Other notices that are required by Colorado law, such as those posted to the front door of a home and the public notice of foreclosure found on the websites of each public trustee, would similarly be prohibited, Gantenbein said.
Contacted by The Post, leaders of the Public Trustee Association of Colorado, which represents all public trustees in the state, did not offer any comment about the case or the impact of its potential outcome.
“Foreclosure law firms and lenders have enjoyed decades of favorable laws that basically immunize them from liability and provide very little oversight or protections for homeowners,” Gantenbein said. “If the court does rule that FDCPA applies, then there is likely to be a massive impact.”
For her part, however, D’Onfro isn’t convinced the court will see it Obduskey’s way.
“I would be surprised if Obduskey won,” she told The Post in an email. “I think the only path to victory before this court is to explain that your reading is the clearest way to read the statute — without leaning on policy or legislative history. Obduskey could not do that.”
