Property Inspections Are Not Debt Collection Under FDCPA

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The United States Court of Appeals for the Seventh Circuit has held that inspections of properties encumbered by defaulted mortgages, even where the property inspector left a hang tag requesting the homeowner contact the mortgage servicer, is not debt collection under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq. Schlaf v. Safeguard Property, LLC, No. 17-2811, 899 F.3d 459 (7th Cir. 2018).

The Schlaf plaintiffs fell behind on their mortgage, serviced by Green Tree Servicing ("Green Tree"). The mortgage was insured by the Federal Housing Administration ("FHA"), and FHA regulations required that, for any mortgage at least 45 days past due, Green Tree either make direct contact with the homeowners or make an inspection to determine if the property remains occupied or has been abandoned.

Green Tree contracted with Safeguard Property, LLC ("Safeguard") to perform the inspections, and as part of its contract required that Safeguard leave a hang tag on the door of each home. The hang tag requested the homeowners to call Green Tree and gave Green Tree's telephone number, but made no reference to Safeguard and contained no information about the defaulted loan.

The Schlafs filed a putative class action against Safeguard, alleging that, by placing the hang tag on the homes, Safeguard was involved in indirect debt collection in violation of the FDCPA. After the District Court entered judgment in favor of Safeguard, the homeowners appealed.

The Seventh Circuit agreed with the District Court that Safeguard's property inspection services, including the hang tag, did not make Safeguard a debt collector under the FDCPA. Safeguard did not have collection of debts as its principal purpose, nor did it regularly collect or attempt to collect any debts owed to another entity. The hang tags contained no information about the homeowners' debts, they included no demand for payment, and at best Safeguard was simply a messenger, not a debt collector. Even insofar as the hang tag could be considered communication with the debtors, such communication was in connection with a property inspection, not debt collection. Accordingly, the property inspections did not violate the FDCPA.

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