Court of Appeal (Cal.) Says Rosenthal Act Covers Mortgage Servicer

Although the defendants concede that “secured debt could still be a ‘consumer debt,’ “ they nevertheless argue that this “does not mean a mortgage debt is a consumer debt.” The defendants explain that, in their view, “[t]he deciding factor is not whether the debt is ‘secured,’ but whether the debt was obtained in exchange for goods or services with a ‘personal, family, or household purpose.’ “ The defendants’ reference to “goods or services” is inapt. The Rosenthal Act covers transactions beyond those involving consumer goods or services. The Act specifies that it covers debt that is incurred to acquire property, without any limitation as to the nature of that property, as well as to services or even money. (§ 1788.2, subd. (e).) We therefore decline to look to other “federal and state statutes that apply only to purchases of ‘consumer’ goods, such as California’s Song-Beverly Consumer Warranty Act or the federal Magnuson-Moss Act” in interpreting the definitions provided in the Rosenthal Act, as the defendants’ request.  We also reject the conclusory argument in defendants’ briefing that a real estate transaction simply cannot be considered to be a “consumer” transaction. The defendants contend, in essence, that a “real estate transaction” is an “economic transaction for a fixed and permanent asset,” and usually involves “relative complexity” and a “mountain of paperwork, only some of it related to the actual funding of the transaction.” According to the defendants, these facts somehow mean that such a transaction cannot be considered to be a “consumer transaction.” As we have explained, however, the Legislature provided a specific definition of a “consumer credit transaction,” and that definition is sufficiently broad to include transactions that involve real property; there is no indication in the text of the provision that it is intended to exclude transactions that involve real property or the use of real property as security for the debt, nor is there any indication that the statute excludes transactions that are complex or involve “a mountain of paperwork.”  Further, to the extent that the defendants are advocating an interpretation of the Rosenthal Act’s definition of “consumer debt” that would exclude debt secured by a deed of trust to real property, such an interpretation is undermined by the fact that there is no express exemption in the Act for a debt secured by a deed of trust, and also by the fact that elsewhere in the Act, the Legislature has expressly provided for a very limited exemption with respect to transactions involving a debt secured by a deed of trust. Specifically, section 2924, subdivision (b) provides a statutory exemption from the Rosenthal Act for a trustee under a deed of trust as follows . . . . Some of the federal authorities that the defendants cite, and on which the trial court relied, have, albeit minimally, addressed the question raised by this appeal, i.e., whether a mortgage lender and/or mortgage servicer can be a “debt collector” under the Rosenthal Act, and have concluded that the answer to that question is “no.” (See Lal v. American Home Servicing, Inc. (E.D.Cal. 2010) 680 F.Supp.2d 1218, 1224 (Lal) [“This Court finds that the RFDCPA does in fact mirror … the FDCPA, their intentions were the same and exclusive, and, as such, a loan servicer is not a debt collector under these acts” given that “[t]he law is well settled that FDCPA’s definition of debt collector ‘does not include the consumer’s creditors, a mortgage servicing company, or any assignee of the debt’ ”]; Abels v. Bank of America, N.A. (N.D.Cal., May 31, 2012, No. 11-CV-208 YGR) 2012 WL 1980858, at *2 [dismissing Rosenthal Act claim both because “foreclosure on a residential mortgage is not ‘debt collection’ under the Act,” but also stating, without analysis, that “a loan servicer is not a debt collector regulated by the Act”]; Glover v. Fremont Inv. and Loan (N.D.Cal., Dec. 18, 2009, No. C-09-03922 (JCS)) 2009 WL 5114001, at *8 (Glover) [concluding, without any analysis of the Rosenthal Act, that a mortgage loan servicer “is not a ‘debt collector’ within the meaning of the debt collection statutes”—i.e., the FDCPA and the Rosenthal Act]; Mannello v. Residential Credit Solutions, Inc. (C.D.Cal., Jan. 7, 2016, No. 2:15-CV-07674-CAS-AJW) 2016 WL 94236, at *5 (Manello) [dismissing plaintiff’s FDCPA and Rosenthal Act claims, without separate analysis of the Rosenthal Act, because plaintiff failed to sufficiently allege that the defendant loan servicer was “a ‘debt collector’ for purposes of the FDCPA”]; Hepler v. Washington Mut. Bank, F.A. (C.D.Cal., Apr. 17, 2009, No. CV 07-4804 CAS (EX)) 2009 WL 1045470, at *4 [concluding, without analysis of the language of the Rosenthal Act, that mortgage lender “is not a debt collector pursuant to 15 U.S.C. § 1692a or Cal. Civ. Code § 1788.2 and therefore [lender] is entitled to summary judgment on plaintiff’s FDCPA and [Rosenthal Act] claims”].) The defendants rely on these and the other cases that involve slightly different issues to support their assertion that the “majority” of federal courts have “excluded mortgage servicing from the definition of debt collectors.” We are unconvinced of this proposition. A number of other federal authorities have concluded that mortgage servicers and/or mortgage lenders can and do fall within the definition of “debt collector” under the Rosenthal Act. (See, e.g., Sau King Chan, supra, 2017 WL 1807947, at *3 [“ ‘courts have reasoned that a mortgage servicer may be a debt collector under the Rosenthal Act’ “]; Sudhir v. PHH Mortgage Corporation (N.D.Cal., Jan. 19, 2017, No. C 16-06088 WHA) 2017 WL 219681, at *2–3 (Sudhir) [Rosenthal Act’s definition of “debt collector” is not “as restrictive as its counterpart in the FDCPA,” and concluding that a mortgage servicing company may be a debt collector under the Rosenthal Act]; Castillo v. Nationstar Mortgage LLC (N.D.Cal., Nov. 22, 2016, No. 15-CV-01743-BLF) 2016 WL 6873526, at *5 [plaintiffs had established that Nationstar was a “ ‘debt collector’ under the [Rosenthal Act]” by showing that Nationstar “regularly billed them and collected payments on their mortgage loan debt”]; Cavender v. Wells Fargo Bank (N.D.Cal., Sept. 6, 2016, No. 16-CV-00703-KAW) 2016 WL 4608234, at *8 [in the course of dismissing plaintiff’s Rosenthal Act claim on different grounds, acknowledging that “ ‘a mortgage servicer may be a “debt collector” under the Rosenthal Act even if it is the original lender, whereas, such an entity would be excluded from the definition of debt collector under the federal act’ “]; Wilkins v. Bank of America, N.A. (E.D.Cal., Aug. 19, 2016, No. 2:15-CV-02341-KJM-EFB) 2016 WL 5940082, at *7 [“A mortgage servicer and an original lender may be ‘debt collectors’ under the Rosenthal Act”]; Reyes v. Wells Fargo Bank, N.A. (N.D.Cal. Jan. 3, 2011, No. C-10-01667 JCS) 2011 WL 30759, at *19 [“[a]s a number of courts have recognized, the definition of ‘debt collector’ is broader under the Rosenthal Act than it is under the FDCPA,” and “a mortgage servicer may be a ‘debt collector’ under the Rosenthal Act even if it is the original lender, whereas, such an entity would be excluded from the definition of debt collector under the federal act”]; Walters v. Fidelity Mortg. of CA (E.D.Cal. 2010) 730 F.Supp.2d 1185, 1203 [mortgage servicer that regularly billed plaintiff and collected payments on her mortgage debt was a “debt collector” under the Rosenthal Act]; Herrera v. LCS Fin. Services Corp., (N.D.Cal., Dec. 22, 2009, No. C09-02843 TEH) 2009 WL 5062192, at *2.)  In our view, those federal courts that have concluded that section 1788.2 ‘s definition of “debt collector” may include mortgage lenders and mortgage servicers have the better position under an analysis of the actual statutory language. Significantly, a number of the federal courts that have concluded that mortgage lenders and servicers may not be considered to be “debt collectors” under the Rosenthal Act have either not considered the actual language of the Rosenthal Act or have relied on the fact that mortgage lenders and mortgage servicers would not be “debt collectors” under the FDCPA in reaching their conclusion regarding the Rosenthal Act. (See, e.g., Lal, supra, 680 F.Supp.2d at p. 1224 [“This Court finds that the [Rosenthal Act] does in fact mirror … the FDCPA, their intentions were the same and exclusive, and, as such, a loan servicer is not a debt collector under these acts. [FN] [¶] The law is well settled that FDCPA’s definition of debt collector ‘does not include the consumer’s creditors, a mortgage servicing company, or any assignee of the debt’ “]; Mannello, supra, 2016 WL 94236, at *4; Glover, supra, 2009 WL 5114001, at *8.) This reasoning is problematic, however, because the FDCPA statutory definition of “debt collector” differs significantly from the definition of “debt collector” provided under the Rosenthal Act; the definition of “debt collector” provided in the Rosenthal Act is far broader than that provided in the FDCPA. The Rosenthal Act does not mirror the FDCPA, and clearly does not do so with respect to the definition of “debt collector.” (Compare § 1788.2, subd. (c) with 15 U.S.C. § 1692a, subd. (6).)   The FDCPA specifically excludes from the definition of “debt collector” “any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity … (ii) concerns a debt which was originated by such person; [or] (iii) concerns a debt which was not in default at the time it was obtained by such person ….” (15 U.S.C. § 1692a, subd. (6)(F).) As one federal appellate court has explained, “[A] debt collector does not include the consumer’s creditors, a mortgage servicing company, or an assignee of a debt, as long as the debt was not in default at the time it was assigned.” (Perry v. Stewart Title Co. (5th Cir. 1985) 756 F.2d 1197, 1208.) In contrast to the FDCPA, the Rosenthal Act does not so limit the definition of “debt collector.” Rather, the Rosenthal Act considers anyone who regularly engages in the act or practice of collecting money, property or their equivalent that is due or owing by a natural person as a result of a transaction between that person and another person in which the natural person acquired property, services, or money on credit, primarily for personal, family, or household purposes to be a “debt collector.”  It is significant that although our Legislature adopted a number of the FDCPA’s provisions, including, under section 1788.17, all of the substantive provisions applicable to debt collectors under the FDCPA, as well as the remedies for violations of those provisions, the Legislature did not incorporate into the Rosenthal Act 15 U.S.C. § 1692a of the federal act—i.e., the section that defines “debt collector” for purposes of the FDCPA. The express inclusion of many provisions of the federal act, but not the provision in question, indicates that our Legislature intended that the Rosenthal Act not mirror the federal act in this regard. As one federal court has aptly noted, “The California [L]egislature clearly intended and afforded greater protection to consumers by making the Act applicable to more types of creditors.” (Sudhir, supra, 2017 WL 219681, at *2–3.)¹⁵ Given that the Rosenthal Act does not “in fact mirror in the FDCPA” (Mannello, supra, at p. *4), particularly with respect to the definition of “debt collector,” we decline to take guidance from those federal authorities that have concluded, without analysis, that the Rosenthal Act’s definition of “debt collector” excludes mortgage lenders and mortgage servicers.  The defendants concede that the FDCPA and the Rosenthal Act are not entirely coextensive. However, they nevertheless argue that even though the Rosenthal Act “uses a different definition of debt collector than the [FDCPA],” this does not mean that the Rosenthal Act “regulates mortgage servicers” but the “FDCPA does not.” They insist, instead, that the “[t]he FDCPA and the Rosenthal Act, though using slightly different language, both exclude mortgage servicers.” However, it is clear that the Legislature intended for the Rosenthal Act to provide a broader definition of “debt collector” than that provided in the FDCPA, and, as we have explained, the Rosenthal Act’s reference to an entity that attempts to collect money that is due as a result of a consumer credit transaction, by its express terms, would not exclude a mortgage servicer. There is no other provision in the Rosenthal Act that would indicate that mortgage servicers are otherwise exempt from the Act’s coverage. We therefore conclude that the Rosenthal Act’s definition of “debt collector” applies to a mortgage servicer who engages in debt collection practices in attempting to obtain repayment of mortgage debt, and that the trial court improperly sustained the defendants’ demurrer on the ground that the Act does not apply to mortgage servicers. Given our reversal of the court’s ruling with respect to the Rosenthal Act claim, we must also reverse the court’s ruling with respect to Davidson’s UCL claim, since that claim is premised on his Rosenthal Act claim.¹⁶