In Kevin Prescott v. Seterus, Inc., No. 15-10038, 11 Cir.; 2014 US App. LEXIS 20934, the court ruled that the defendant loan servicer, Seterus, violated § § 1692e(2) and 1692f(1) of Fair Debt Collection Practices Act (FDCPA), as well as the FCCPA (Florida Statute 559.55 et seq.) by including estimated attorney’s fees in a reinstatement quote to the borrower, Kevin Prescott. The court found that while the security agreement obligated Prescott to pay for attorney’s fees and other expenses actually incurred by the loan servicer as a result of his default nothing in the security agreement explicitly stated that Prescott must pay estimated fees and costs for future legal services.
The question before the court was whether the least sophisticated consumer would have nonetheless understood the security agreement to obligate Prescott to pay such fees; the court held the answer to be no. The court further held the Defendant was not entitled to benefit from a bona fide error defense, as estimated fees/costs were not included as a result of an error.
It is important to note that as a result of this decision, as well as two similar opinions in other jurisdictions, James L. Beard v. Ocwen Loan Servicing, LLC, Udren Law Offices, PC, and Cathy Moore, Civil No., (1:14-CV-1162, USDC, M.D. Pennsylvania) and Dale Kaymark v. Bank of America, N.A. and Udren Law Offices, P.C., (W.D. Pa. No. 2-13-CV-00419), great care should be taken to include only incurred fees and costs in reinstatement or payoff quotes. Any other practice could expose servicers and law firms to liability.
COMPLIANCE SUGGESTIONS FOR JUDICIAL STATES
Law firms and servicers should be diligent to eliminate forecasted/estimated fees from their reinstatement and payoff quotes. Diligence should be exercised in providing the borrower with the most accurate figures available in a timely manner. Due to the timing of the requests for the reinstatement or payoff quotes versus the timing of the actions taken in the mortgage foreclosure cases, there may be fees or costs incurred during the time period between when the quote is provided and when the funds are due to be tendered (the “good through” date.) This may result in fees or costs not being included in the amounts tendered by the borrowers.
Servicers should consider significantly reducing the length of time payoff and reinstatement quotes are viable (shorten the good through date.) Servicers may want to require borrowers to contact the foreclosure law firm by email or phone at least two business days prior to tender of funds in order to update the quote. This will reduce the likelihood of additional fees and costs being incurred in the interim. In Florida, if there is a foreclosure case filed, the foreclosure firm must take the necessary steps to dismiss the foreclosure action once the loan has been reinstated or paid off. The attorney’s fees to dismiss the case, which may be construed as forecasted prior to the tender of funds, should not be included in reinstatement or payoff quotes. It is the expectation that the fees and costs related to filing the dismissal will be incurred and paid by the servicer.
COMPLIANCE SUGGESTIONS FOR NONJUDICIAL STATES
As previously stated, law firms and servicers should be diligent to eliminate forecasted/estimated fees from their reinstatement and payoff quotes. Care should be exercised in providing the borrower with the most accurate figures available in a timely manner. Actions in non-judicial states move much more rapidly than judicial states. As such, fees and costs are usually incurred over short time frames. For example, publication costs are incurred the four weeks leading up to the sale date in some non-judicial states. Each week when a new publication runs, the cost increases.
Often figures will be requested with good through dates leading up to just prior to sale or even 30 days or more in the future. It is also notable that the requests often are for “estimated” amounts. Providing estimates of potential future fees/costs is simply no longer advisable in light of Prescott. In order to reduce potential liability, consideration should be given to shortening the time frame of reinstatement and payoff quotes provided to borrowers to seven to 10 days. Further, when the fees and costs are requested in the client systems it is recommended that only incurred fees and costs be requested. Servicers should strongly shy from providing quotes of long duration and any estimates to borrowers.