A federal district court in Illinois recently dismissed a putative class action against a foreclosure firm, holding that an allegation in a foreclosure complaint that the mortgagor is personally liable for any deficiency on a Federal Housing Authority (FHA) insured loan is not a violation of the Fair Debt Collection Practices Act (FDCPA).

In the case, the plaintiff obtained an FHA insured loan and subsequently defaulted. The underlying foreclosure complaint specifically identified the plaintiff, the mortgagor, as personally liable for any deficiency. 

In response, the plaintiff filed an independent FDCPA action against the foreclosure law firm, claiming that it was not truthful for the firm to allege in the foreclosure complaint that plaintiff is personally liable for any deficiency. According to the plaintiff, this allegation was false and misleading because, under FHA regulations and guidelines, it was virtually certain that the FHA would not authorize or require that a deficiency be pursued against the plaintiff.

The court held that a foreclosure complaint may include such an allegation because, under Illinois mortgage foreclosure law, the borrower is in fact the party liable for any deficiency following the foreclosure action, regardless of the likelihood that the FHA would request or require that a deficiency be pursued. In addition, the court noted that nothing in the FHA regulations or guidelines required that a mortgagee obtain FHA authorization prior to the mortgagee seeking a deficiency. As such, the court held that defendant’s allegation in the foreclosure complaint that the plaintiff is personally liable for any deficiency was a true statement, and did not violate the FDCPA.