The Maryland Court of Appeals – the state’s highest court – recently overturned a trial court’s ruling dismissing an alleged class action claim, arguing that mortgage servants and the loan holder violated the Maryland Usury Act and Maryland Consumer Debt Collection Act by charging property due diligence fees in connection with residential buildings. mortgage loans.
In this judgment, the Court held that:
- The Maryland Usury Act, in particular §12-121 CL, restricts the authority of the mortgage lender and loan servicers and successors to charge property verification fees in connection with that loan.
- In order to “adequately declare the necessary knowledge for the purposes of [Maryland Consumer Debt Collection Act, CL §14-202(8)], the plaintiff must argue that the defendant either really knew that he did not have the right to which he claimed as part of his efforts to collect the debt, or recklessly ignored the falsity of this claim. “
A copy of the conclusion in Nationstar Mortgage vs. Kemp available at: Link to opinion.
The applicant borrower received a loan secured by his home. The loan was later sold and assigned, and the borrower later defaulted on the loan. The Service Provider has started charging fees for on-site inspections of the collateral.
The borrower objected to the fees and eventually filed an alleged class action lawsuit under, among other things, the Maryland Usury Act and the Maryland Consumer Debt Collection Act (MCDCA) against the owner and maintainer of the loan for allegedly collecting an illegal “travel inspection”. fees.
The trial court dismissed the claim and the borrower appealed. The Special Court of Appeals (Maryland Intermediate Court of Appeals) overturned the decision, and the Maryland Court of Appeals granted the parties’ petition and the cross-order petition.
The Maryland Court of Appeals noted that the first question to be decided was “whether the definition of creditor was added to the Maryland Usury Act during  The revision of the code resulted in significant changes to this law – and to the common law of Maryland – that lay dormant for more than four decades before this case arose. ”
The second question was whether the borrower’s complaint adequately argued that the maintenance staff “attempted to recover the alleged debt by claiming their right to charge an inspection fee, knowing that such a right did not exist, in violation of the MCDCA.”
On the first point, the Court noted that Maryland had regulated interest rates and levies on loans since colonial times. The statute in question was codified in 1957 and now appears as the Maryland Usury Act in a state commercial law article.
The specific provision in question – CL §12-121, added in 1986 – limits the collection of inspection fees in connection with the financing of residential property as follows:
- In this section, the term “lender inspection fee” means the fee charged by the lender for the visual inspection of real estate.
- Except as provided in subsection (c) of this section, the lender may not charge the lender a verification fee in connection with a loan secured by residential property.
- A Lender Verification Fee may be charged if verification is required to confirm completion of: (1) the construction of a new home; or (2) repairs, alterations or other work required by the lender.
- This section does not apply to the valuation of real estate by the lender or to fees charged in connection with the valuation.
The defendant serving the loan and the assignee have taken a position that they are not covered by the term “creditor” in the articles of association.
The Defendants argued that, since 1975, §12-101 (f) CL, “has designated a ‘lender’ as ‘the person who makes a loan under this subheading’ and that the ‘subheading’ referred to in this definition is the Law on usury of Maryland. … “
Defendants also pointed to “the reference to the granting of the loan and the absence of the word ‘assignee’ in §12-101 (f) CL”. In addition, the defendants argued that “the text of CL §12-109.2 (a) (3) includes a reference to the“ assignee of the creditor ”” and therefore “the definition of“ creditor ”commonly applied in the Usury Law at § 12-101 (f ) CL shall not apply to the creditor’s successor. “
The Maryland Court of Appeals disagreed.
In the judgment, the Court noted that “[u]Under common law, the assignee usually has the same rights and obligations as his assignor – nothing more, nothing less. ” Hence, “[t]the rights and obligations of the mortgage assignee do not differ “, and”[a]As a general rule, a mortgage assignee has no authority over a mortgage that the assignor did not have. “
Here the Court has indicated that “the standard canon of statutory interpretation is that the statutes are not to be construed as implicitly overriding the common law”. The court continued that “[g]given the simplicity and frequency with which loans are granted – and they have been made in Maryland for a long time – it is very unlikely that the Legislature intended to change the common law so dramatically without specifying such a purpose, “and that”[s]likewise, there is no indication that the Legislature intended to narrow the scope of the Usury Act by inserting a gaping loophole in provisions that use the term creditor in the context of post-creation behavior. “
Moreover, the Court indicated that “[o]however, other parts of the Usury Act clearly regulate behavior that occurs at a later stage in the loan term “and that”[t]These provisions, which appear to apply throughout the life of the loan, imply that the term “lender” includes not only the lender, but also the assignee. ”
The Maryland Court of Appeals also referred to its decision in Taylor vs. Friedman, 344 Md. 572 (1997), in which the Court stated that it held that “the prohibition in § 12-121 of the Loan Act was not limited to the granting of a loan”. Though Taylor vs. Friedman “The case concerned whether the prohibition in §12-121 of the Tax and Failure Act applied to payment of inspections after default”, the Court noted that “the defendant bank’s status as the legal successor of the mortgage loan was evident from the facts”.
Moreover, the Court also referred to its judgment in Tompkins v Mountaineer Investments, LLC, 439 Md. 118 (2014), in which it ruled that “the assignee is not liable for the violation of [Maryland Secondary Mortgage Loan Law (SMLL)] committed by the original lender at the time of the loan, but the assignee was subject to the requirements of the SMLL and will be held liable for its own violations of the law, “and” noted that [Maryland] The Usury Law, in particular, provides that the successor may be held liable for violation of this law. “
Moreover, the Court also noted that “[s]Since at least January 2014, the Maryland Financial Regulatory Commissioner has taken a position that mortgage servants … are banned from inspection fees under §12-121 CL during the life of a mortgage loan. Information Notice (January 7, 2014), available at https://perma.cc/2WYR-S22S“.
Accordingly, the Maryland Court of Appeals ruled that “the 1975 revision of the code did not change the Maryland law applicable to mortgage successors and that the prohibition on property verification fees applies” to both the servicing loan and the loan holder.
On the second issue, the Maryland Court of Appeals noted that the MCDCA prohibits any collection or attempted collection of a suspected debt, among other things, from making any “[c]complaint, attempt or threat to enforce the law, knowing that such a right does not exist. ” CL §14-202 (8).
The court first read out its ruling from Chavis vs. Blibaum & Associates, PA, ___ Md. ___, ___ (2021), issued on the same day as this, that the plaintiff may invoke subsection (8), “when the amount demanded by the debt collector includes amounts that the debt collector, as far as he knows, is not entitled to collect … “The Maryland Court of Appeals ruled that the complaint met this requirement.
Moreover, referring again to its then decision in Chavis vs. Blibaum & Associates, PAThe Maryland Court of Appeals ruled that “the element of knowledge is respected when the law is established because the recklessness of the debt collector in not discovering that the law is the equivalent of knowledge,” and rejected the idea that “the existence ‘of a potentially worthy argument for the existence of law necessarily denies knowledge “. Instead, the Court held that “the question of whether the debt collector acted recklessly is a matter of fact that must be decided in the light of the particular circumstances.”
The Maryland Court of Appeals summed up that “in order to properly declare the necessary knowledge for the purposes [CL §14-202(8)], the plaintiff must argue that the defendant either really knew that he did not have the right to which he claimed as part of his efforts to collect the debt, or recklessly ignored the falsity of this claim. “
Here, the Court referred to its rulings and arguments under the Maryland Usury Act, especially the 2014 Maryland Financial Regulatory Commissioner’s advisory notice. The court ruled that this was sufficient to state that the attendants “knew that they had no right to charge such a fee.”
Accordingly, the Maryland Court of Appeals overturned the trial court’s decision and remanded the case for further trial in accordance with its opinion.