In Smith v. EVB, 2011 WL 2689061 (4th Cir. 2011), the Court of Appeals found a mixed-use commercial/consumer debt to possibly be subject to the FDCPA. The loan transactions were as follows:
According to Smith, the purpose of the 2004 loan was the purchase and ownership of Smith’s per-sonal residence (“the Wilton House”). Smith con-tends that he created Piedmont for the sole purpose of obtaining the loan and owning the property (“the Wilton Plat”) on which the Wilton House sat. Al-though the 2004 loan was made to Piedmont, it was secured by an interest in Smith’s residence. Accord-ing to Smith and his accountant, Piedmont has never conducted any other commercial activity and its sole function was to hold the property Smith used as his residence. In 2006, Smith personally obtained a second loan (the “2006 loan”) from BOG for $250,000. The DRA accompanying this loan stated that it was primarily for personal, family, or household purposes. Smith used $200,000 of the 2006 loan to pay off the balance of the 2004 loan. It is undisputed that Smith has al-ways represented that the 2006 loan was for personal purposes. In 2008, BOG assigned the 2006 loan to EVB. EVB and its substitute trustee, Archie Berkeley, claimed that Smith defaulted on his obligations under the note and Smith claims that EVB and Berkeley threatened foreclosure of the Wilton Plat. Smith brought a complaint against EVB and Berkeley under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §§ 1692–1692p (2006). He claimed in his complaint that EVB and Berkeley failed to provide Smith with a copy of the assignment agreement, made threatening phone calls, and intentionally pub-lished a foreclosure notice that they knew to be based on false financial information.
The Court of Appeals found the facts stated an FDCPA claim:
In this case, the district court itself noted that the FDCPA is concerned “with the substance of the transaction as opposed to the form.” The “substance” of the 2006 loan, however, was clearly personal in nature. Even assuming that the 2004 loan was com-mercial, Smith took the 2006 loan out in his own name with the purpose of paying off the 2004 loan. As a practical matter, the 2006 loan allowed Smith to transfer the mortgage on his home from Piedmont to himself. Indeed, Smith represented to BOG in 2006 that the loan was for personal use, and the record is uncontroverted that the loan had a entirely personal purpose—essentially taking over the debt on Smith’s home. On appeal, EVB repeatedly emphasizes that the 2004 loan was a business transaction. This argument misses the mark by ignoring the purposes of the 2006 loan. Although related to a purported business trans-action, the 2006 loan concerned Smith’s personal finances, his personal residence, and was taken out in his own name. In other words, it was a personal loan.