MD Court of Appeals Limits Property Inspection Fees

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The Maryland Court of Appeals recently reversed the dismissal of a putative class action alleging state law violations related to property inspection fees charged by a mortgage loan servicer, holding that the Maryland Usury Law’s limitations on a lender’s ability to charge property inspection fees also apply to assignees of mortgage loans.

The named plaintiff in the case is a borrower who defaulted on her mortgage, which had been assigned to Fannie Mae, and entered into a loan modification agreement with her servicer, who then allegedly included post-default property inspection fees in the loan balance.  The plaintiff alleged that Fannie Mae and the servicer violated the Maryland Usury Law, which limits a lender’s ability to charge inspection fees except in specified circumstances, and the Maryland Consumer Debt Collection Act (MCDCA), which prohibits a debt collector from attempting to enforce a right with knowledge that the right does not exist.

The trial court dismissed the borrower’s Usury Law claims, concluding that neither Fannie Mae nor the servicer fit the Usury Law’s definition of “lender” because neither defendant was the “person who ma[de] the loan.”  The trial court also held that, because communications sent by the servicer to the borrower were not attempts to collect a debt under the MCDCA, the plaintiff did not adequately plead a violation of the MCDCA.

On appeal, the Court of Special Appeals (Maryland’s intermediate appellate court) held that assignees such as Fannie Mae are considered “lenders” under the Usury Law and thus subject to that law’s fee restrictions, overturning the trial court’s dismissal of the Usury Law claim.  The Court of Special Appeals affirmed the trial court’s dismissal of the MCDCA claim on different grounds, finding that the MCDCA prohibits the use of illegal methods of debt collection but does not allow a borrower to attack the validity of the underlying debt.  WBK previously covered the intermediate appellate decision here

Now, the Court of Appeals (Maryland’s highest court) has upheld the intermediate appellate court’s interpretation of “lender” under the Usury Law, explaining that nothing in the statutory context, legislative history, or common law understanding indicates that the fee prohibition would not apply to assignees as well as originating lenders.  Thus, the Court of Appeals has allowed the plaintiff’s Usury Law claims against Fannie Mae and the servicer (as Fannie Mae’s agent) to go forward.  

The Court of Appeals also reversed dismissal of the MCDCA claim, finding that valid claims under the MCDCA are not limited to only those alleging improper methods of debt collection, but also include those addressing the validity of the underlying debt.  Furthermore, the Court of Appeals held, because the plaintiff also alleged that the servicer either had actual knowledge that it did not possess a right to the inspection fees or recklessly disregarded the falsity of its claim to the inspection fees, the complaint pled all of the required elements of an MCDCA claim and was therefore improperly dismissed.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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