Maryland High Court keeps property inspection fees capped for mortgage lenders, servicers, and assignees
The Maryland Court of Appeals – the state’s highest court – recently overturned a court dismissal of an alleged class action lawsuit alleging that a mortgage administrator and loan owner violated the Maryland Usury Law and Maryland Consumer Debt Collection Act by charging property inspection fees Has raised mortgage loans related to residential real estate.
In that judgment, the Court found that:
- Maryland Usury Law, specifically CL §12-121, limits the authority of a person making a mortgage loan, as well as service providers and assignees of the loan, to collect property inspection fees in connection with that loan.
- In order to “have the knowledge required for the purposes of [Maryland Consumer Debt Collection Act, CL §14-202(8)], a plaintiff must assert that the defendant either actually knew that he did not have a right asserted in the course of his collection efforts, or that he carelessly disregarded the inaccuracy of this claim. “
A copy of the statement in Nationstar mortgage against Kemp is available from: Link to the statement.
The plaintiff borrower received a loan secured in trust for her home. The loan was later sold and assigned, and the borrower later defaulted on the loan. The servicer began calculating the fees for “drive-by inspections” of the collateral property.
The borrower objected to the fees and eventually filed an alleged class action lawsuit, including under the Maryland Usury Law and the Maryland Consumer Debt Collection Act (MCDCA), against the loan holder and the loan administrator for allegedly carrying out illegal drive-by inspections. had raised. Fees.
The court dismissed the lawsuit and the borrower appealed. The Court of Special Appeals overturned and the Maryland Court of Appeals granted the parties’ motion and countermotion for certification.
The Maryland Court of Appeals found that the first question to be resolved was “whether the inclusion of a definition of ‘lender’ in the Maryland Usury Act during the  The law revision made a significant change to that law – and to Maryland Common Law – that was latent for more than four decades before this case occurred. “
The second question was whether the borrower’s complaint adequately alleged that the servicer “attempted to collect an alleged debt by asserting a right to collect inspection fees in violation of the MCDCA, knowing that that right did not exist” .
On the first question, the Court found that Maryland has been regulating interest rates and fees on loans since colonial times. The law at issue here was codified in 1957 and now appears as the Maryland Usury Law in the state’s Commercial Law Article.
The special provision in question here – CL §12-121, added in 1986 – restricts the charging of an inspection fee in connection with the financing of residential real estate as follows:
- In this section, the term “lender inspection fee” means a fee charged by a lender to pay for a visual inspection of a property.
- Except as provided in sub-section (c) of this section, a lender may not impose an audit fee on the lender in connection with a residential loan.
- A lender inspection fee may be charged if the inspection is required to complete: (1) building a new home; or (2) repairs, alterations, or other work requested by the Lender.
- This section does not apply to a lender’s valuation of a property or to any fees incurred in connection with a valuation.
The defendant credit manager and assignee took the view that they do not fall under the term “lender” in the law.
Defendants argued that, since 1975, CL §12-101 (f) has defined “’Lender’ as ‘a person who makes a loan under this Subtitle’ and that the ‘Subtitle’ referred to in this definition which is Maryland Usury Law. “
Defendants also pointed to “the reference to the granting of a loan and the absence of the word ‘assignee’ in CL §12-101 (f)”. In addition, defendants argued that “the wording of CL §12-109.2 (a) (3) contains a reference to a ‘lender assignee'” and therefore “the definition of ‘lender’ is generally applicable in usury”. The law in CL §12-101 (f) must not include an assignee of a lender. “
The Maryland appeals court disagreed.
In this judgment, the court found that “[u]Under common law, an assignee generally has the same rights and obligations as his assignor – no more and no less. “Therefore,”[t]The rights and obligations of an assignee of a mortgage are no different “and”[a]As a rule, the assignee of a mortgage does not acquire powers over the mortgage that the assignor did not have. “
Here the court stated that “it is a standard canon of legal interpretation that laws should not be construed as tacitly repealing common law”. The court continued that “[g]Given the ease and frequency with which loans are made – and which have long been granted in Maryland – it is very unlikely that lawmakers intended to change common law so radically without making such a purpose clear, “and that “[s]There is also no indication that the legislature intended to restrict the scope of the Usury Act by adding a gaping loophole in those provisions that use the term “lender” in connection with behavior after it arises. “
In addition, the court pointed out that “[o]however, other parts of the Usury Act clearly regulate behavior that occurs later in the term of the loan “, and that”[t]These provisions, which appear to apply over the life of a loan, suggest that the term “lender” includes not only a lender but also an assignee. “
The Maryland Court of Appeals also referred to its judgment in Taylor v. Friedman, 344 Md. 572 (1997), in which the Court found that “the prohibition in CL §12-121 was not limited to the granting of the loan”. Although the Taylor v. Friedman “The case concerned whether the prohibition in CL §12-121 applied to fees for late arrears”, the court found that “the status of the defendant bank as assignee of the mortgage loan was evident from the facts”.
The Court also referred to its judgment in Thompkins v Mountaineer Investments, LLC, 439 Md. 118 (2014), in which it stated that “an assignee is not responsible for a breach of the [Maryland Secondary Mortgage Loan Law (SMLL)] the original lender was committed in granting the loan, but the assignee was subject to the requirements of the SMLL and would be liable for his own violations of the law ”and“ observed that the [Maryland] The usury law provided in particular that an assignee could be made liable for violations of this law. “
In addition, the court found that “[s]Since at least January 2014, the Maryland Commissioner of Financial Regulation has taken the position that mortgage administrators … are subject to the prohibition of inspection fees in CL §12-121 during the life of a mortgage loan. Note (January 7, 2014), available at https://perma.cc/2WYR-S22S“.
Accordingly, the Maryland Court of Appeals ruled that the 1975 revision of the law “did not change Maryland law applicable to mortgage assignees and that the prohibition on property inspection fees applies to both the loan servicer and the loan owner.”
In relation to the second question, the Maryland Court of Appeals found that the MCDCA forbids anyone from collecting or attempting to collect an alleged claim, including by “[c]lie, try or threaten enforce a right knowing that the right does not exist. ”CL §14-202 (8).
The court first recited its judgment of Chavis v. Blibaum & Associates, PA, ___ Md. ___, ___ (2021), issued on the same day as this, that a plaintiff can invoke subsection (8) “if the amount requested by the collection agency includes amounts that the collection agency has no right to collect to its knowledge.” The Maryland Court of Appeals found the appeal to meet this requirement.
In addition, with renewed reference to the simultaneous judgment in Chavis v. Blibaum & Associates, PA, The Maryland Appeals Court ruled that “the element of knowledge is satisfied when the law is settled because of the debt collector’s ruthlessness in not discovering that the law is the equivalent of knowledge,” and dismissed the notion that ” the existence of a ‘potentially’ a meritorious argument about the existence of the law necessarily negates knowledge. ”Instead, the court ruled that“ the question of whether a debt collection agency was frivolous is a matter of fact to be determined in the light of the particular circumstances “.
The Maryland Court of Appeals concluded that “to have the knowledge necessary for the purposes of [CL §14-202(8)], a plaintiff must assert that the defendant either actually knew that he did not have a right asserted in the course of his collection efforts, or that he carelessly disregarded the inaccuracy of this claim. “
Here the court was referring to its judgments and reasoning under the Maryland Usury Law, in particular the reference made by the Maryland Commissioner of Financial Regulation in 2014. The court found this sufficient to assert that the servicer “knew that he was not entitled to charge such a fee ”.
Accordingly, the Maryland Court of Appeals overturned the judgment of the court of first instance and remitted the case for further trial in accordance with its view.