Maryland appeals court reverses dismissal of property inspection fee case

Courts State Issues Consumer Finance Mortgages Loan Modification Appellate

On October 1, the Court of Special Appeals for Maryland reversed in part and affirmed in part a dismissal of an action alleging that a mortgage servicer and Fannie Mae (collectively, “defendants”) violated Maryland state law by charging improper property inspection fees. According to the opinion, after defaulting on her mortgage, a consumer was charged $180 for twelve property inspections ordered by her mortgage servicer. After accepting a loan modification, the property inspection fees were rolled into the balance of the consumer’s loan. The consumer subsequently filed a complaint against the defendants alleging violations of, among other things, (i) Section 12-121 of the Maryland Commercial Law Article, “which prohibits a ‘lender’ from imposing a property inspection fee ‘in connection with a loan secured by residential property’”; (ii) the Maryland Consumer Debt Collection Practices Act (MCDCA), with a derivative claim under the Maryland Consumer Protection Act (MCPA); and (iii) the Maryland Mortgage Fraud Protection Act (MMFPA). The defendants moved to dismiss the action, alleging that they were not “lenders” as defined in Section 12-121. The district court dismissed the action.

On appeal, the appellate court disagreed with the defendants’ narrow interpretation of “lender” under Section 12-121, finding that such interpretation is “inconsistent with the structure and purpose of the legislation enacting it.” Specifically, the appellate court held that the lower court erred in finding the defendants not liable as a lender under Section 12-121, as it would be “inconsistent with the purpose of Subtitle 12 to allow an assignee of a note or its agents to charge fees that the originating lender cannot.” The appellate court further held that the lower court erred in determining the property inspection fees were waived through the course of the modification and therefore erred in dismissing the MMFPA claim. However the appellate court upheld dismissal of the MDCPA claim and its derivative MCPA claim, rejecting, among other arguments, the consumer’s argument that the filing of a deed of trust qualified as a communication that “purports to be ‘authorized, issued, or approved by a government, governmental agency, or lawyer’” under state law. Lastly, the appellate court affirmed dismissal of the MMFPA claim, concluding the consumer failed to connect elements of the theory, such as intent to defraud, with any alleged facts in the complaint.