The Appellate Court of Illinois has reversed the dismissal of a lawsuit accusing a defendant of operating as an unlicensed collection agency under the state’s Collection Agency Act by purchasing defaulted mortgage notes and enforcing them through foreclosure actions, ruling that the plain language of the statute reaches entities that buy debt for collection purposes.
The background: The plaintiff, whose home the defendant had foreclosed on, filed suit in the name of the People of the State of Illinois under a provision of the Collection Agency Act that allows any person to seek an injunction against unlicensed collection activity.
- The complaint cited three instances in which the defendant purchased allegedly defaulted mortgage notes and then filed or substituted into foreclosure actions. In one, the defendant stepped into a pending foreclosure and won summary judgment. In another, its foreclosure action is still pending. In the third, the defendant obtained a judgment, purchased the home at the sheriff’s sale, and had the homeowner evicted.
- The defendant moved to dismiss, arguing that enforcing its own security interest through judicial foreclosure is not debt collection and that the statute regulates only third-party collectors. It relied on the Supreme Court’s decision in Henson v. Santander, which held that an entity collecting debts for its own account is not a “debt collector” under the Fair Debt Collection Practices Act.
- The trial court dismissed the complaint with prejudice, finding the defendant would never be subject to the licensing requirement under the circumstances.
The ruling: The Appeals Court reversed and sent the case back for further proceedings. Justice Peterson of the Appellate Court of Illinois, Third District, wrote that under the statute’s plain language, a person acts as a collection agency when it buys accounts, bills, or other debt, and a debt buyer includes any entity purchasing delinquent consumer debt for collection purposes, whether it collects the debt itself or hires an attorney to litigate.
- The defendant’s own application to transact business in Illinois listed its purpose as “Debt collection and Debt purchasing,” which the judge said made it apparent the defendant was in the business of buying debt to collect it.
- The judge found the Henson comparison unpersuasive because the state statute’s definitions are unambiguous, noting the defendant itself admitted the two laws use dissimilar language. The defendant also never claimed any of the statute’s exemptions, which cover loan and finance companies, including licensed residential mortgage entities.
- The judge acknowledged the legislature may not have contemplated mortgage note purchasers when drafting the statute, but wrote that “[a]ny changes that should be made to the Collection Agency Act to address that situation are for the legislature to make and not for this court to interpret into the applicable statutes.”
- The judge declined to consider a consent order entered earlier this year in which the defendant agreed it had operated as an unlicensed collection agency in Illinois from 2019 through 2024, because the order was not before the trial court.
