The United States Supreme Court's Decision in Obduskey v. McCarthy May Change Debt Collection Requirements For Minnesota Mechanic's Lien Notices

Lawyers who record mechanic’s liens cannot afford to ignore the Fair Debt Collection Practices Act (“FDCPA,” or “Act”).  It may only impact an occasional part of an attorney’s lien practice, but the FDCPA is all the more dangerous for not being top of mind.  FDCPA lawsuits can be expensive and corrosive to client relationships.  In particular, the Act provides for the recovery of attorneys’ fees for plaintiffs. (15 U.S.C. §1692k(a),(d).)

The FDCPA pertains to consumer debts (15 U.S.C. §1692a) and requires certain warning notices and verification procedures.  If the lien claimant’s customer is the consumer then the Act may apply.  Where the customer is a contractor but the property belongs to a consumer the Act probably does not apply but caution is advised.  

The process for a mechanic’s lien in Minnesota requires notice to owner in many cases and notice of the recording of the lien statement.  Both of those steps can involve communicating with a consumer property owner and therefore present risk under the FDCPA.

In the 2017 case, Randall v. Paul, 897 N.W.2d 842 (Minn. App. 2017) the Minnesota Court of Appeals determined that a lawyer is not exempt from  the FDCPA just because the notices the lawyer sends were mandated by the lien statute.  If the “animating purpose” of the notice was collecting a consumer debt (even if the notice did not include a demand for payment) the lawyer could be liable under the FDCPA if the required “mini Miranda” language was not included, or if the verification procedures were not followed.  Randall v. Paul was a shot across the bow and a surprise to many lien lawyers who immediately recognized how easy it would be to forget the mini Miranda in the heat of getting a last-minute lien filed.

Lawyers handling mortgage foreclosures by advertisement had similar concerns.  Courts inconsistently applied the FDCPA requirements to communications in foreclosure by advertisement situations, even without direct demands for payment. 

Earlier this year, in Obduskey v. McCarthy & Holthus, the U.S. Supreme Court finally determined whether the FDCPA applied in the context of mortgage foreclosure by advertisement.  The Supreme Court determined that lawyers doing mortgage foreclosure by advertisement are enforcing security interests and simply following State-mandated notice steps.  For that purpose they are not required to follow the broader requirements of the FDCPA (15 U.S.C. §1692g(b)), and only need comply with the more limited requirements of 15 U.S.C. §1692f (6).  Specifically, the more limited requirements prohibit a debt collector from using unfair or unconscionable means to collect a debt, such as taking or threatening to take action to foreclose by advertisement if there is no present right to do so, no present intent to take possession of the property, or the property is exempt by law from foreclosure by advertisement. 

While the Obduskey case is not directly instructive of whether FDCPA protections apply to mechanic’s liens, Justice Breyer’s unanimous opinion reflects that steps required under state law to enforce a security interest, such as notices required to preserve a mechanic’s lien, should not be basis for an FDCPA claim without some other extenuating facts.  Justice Breyer stated:

[T]he Act’s (partial) exclusion of “the enforcement of security interests” must also exclude the legal means required to do so.  

A mechanic’s lien can also be described as a security interest and the process of giving notice to owner and serving a lien statement on a property owner would be the State-mandated procedures which ought to be considered  “the enforcement of security interest.”  These notice procedures are no different from the procedural steps required to foreclose a mortgage by advertisement.  Applying the reasoning of the Obduskey decision, the process of giving notice to owner and serving a lien (without more, such as express demand for payment, perhaps) should only be covered only by part 1692f(6) and not by 1692g as was the result in Randall v. Paul.  

A case similar to Randall v. Paul might be decided differently in light of the Supreme Court’s Obduskey ruling.  Today Randall v. Paul is still the case law in Minnesota and prudent lien lawyers would still take care to give the mini Miranda notices in consumer cases, but commentators are already speculating that the Obduskey decision may curtail opportunistic FDCPA suits in both mechanic’s lien and mortgage foreclosure actions.