Plain English Summary:
When you are behind on your payments in foreclosure and you request a letter to pay the back amounts that you owe (reinstatement) or the full loan balance (payoff), the banks have to give you a total with a due date, as the amount changes each month as another payment becomes due or more interest or fees become due. What the banks would do is add “estimated costs” to these letters, such as hearings that were scheduled for a few weeks out that the bank lawyers anticipated having to file court documents or attend court.
The US Appeals Court (which covers the southeast of the US and Florida) said no, that the bank could ONLY charge what costs it actually incurred as of the date the letter was generated/drafted. So banks can no longer charge anticipated costs in their reinstatement or payoff letters as they once did; and it is actually illegal to do so now.
On December 3, 2015, the United States Court of Appeals, 11th Circuit, decided the case of Kevin Prescott v. Seterus, Inc., 635 Fed. Appx. 640, 2015 U.S. App. LEXIS 20934 (11th Cir. Fla. 2015) and held that the inclusion of estimated/anticipated costs in a payoff or reinstatement letter is a violation of the FDCPA.
In this case, the borrower defaulted on hos lean and sometime after requested a reinstatement letter. He was provided with a letter “good through September 27, 2013,” which included an estimate of anticipated attorney’s fees that had not been incurred as of the date of the letter but were anticipated to be incurred prior to the “good through date” of September 27, 2013. This was fairly commonly added if there is an upcoming hearing or need for further court action to dismiss the case.
The borrower paid the full amount demanded on September 26, 2013, and one week later,filed a lawsuit claiming that the inclusion of estimated attorney’s fees in the letter was a violation of the Fair Debt Collection Practices Act (FDCPA).
The trial court found for the lender and granted summary judgment in its favor, but the 11th Circuit Court of Appeals reversed, holding that the borrower was not obligated to pay estimated fees since the mortgage did not require payment of any expenses other than those that were actually incurred; not those that were anticipated.
The ruling was not based on a failure to disclose the amounts, as the payoff letter listed specific anticipated amount. But rather that the lender had no right to anticipated payments in the payoff that it had not incurred on the date the payoff was made.
Notwithstanding the clause in the mortgage that provided for the lender to “take such action as lender may reasonably require to assure that lender’s interest in the property and rights under the Security Agreement and mortgagor’s obligation to pay the sum secured by the Security Agreement shall continue unchanged”, the court held that, since the least sophisticated consumer would not have understood this language, the fees were not authorized and that the lender demanding them as part of the reinstatemnet was a violation of the FDCPA.
Another similar case regarding payoff and reinstatement letters is Avila v. Riexinger Associates, LLC, 2016 U.S. App. LEXIS 5183, 2016 WL 1104797 (2d Cir. 2016), decided by the U.S. Court of Appeals, 2nd Circuit, on March 22, 2016. This case held that the least sophisticated consumer would not be aware of the fact that the amount due in the payoff letter might increase as a result of interest, legal fees, process servers, and things of similar nature. Avila requires specific “Safe Harbor” language to be included in the letter that provides a disclosure to the consumer that the amounts due may increase between the time the letter is drafted and when the borrower makes payment and the payoff or reinstatement is paid.
If you are in foreclosure and doing a payoff or reinstatement and have these charges on your letter, please contact us today! 754-900-1LAW (1529) or [email protected]