Earlier this summer we explained here that the Third Circuit’s decision in Kaymark spelled Fair Debt Collection Practices Act trouble for mortgage lenders and servicers who make statements seeking to recover estimated fees and costs. We examined these risks in a recent webinar as well. In Beard v. Ocwen, a federal district court, citing Kaymark, recently held a mortgage servicer liable under the FDCPA for a reinstatement letter made by its foreclosure counsel, which included fees and costs that had not been incurred.

Word Placement Matters When Describing ‘Anticipated’ Fees

Jaynie Beard defaulted on her mortgage loan. Following the default, the mortgage loan’s servicing was transferred to Ocwen Loan Servicing. At some point, the decision does not tell us exactly when, a foreclosure action was started. Beard, through counsel, requested the amount needed to reinstate her mortgage. Foreclosure counsel sent Beard’s attorney a letter that included the following statement: “REINSTATEMENT AMOUNT ANTICIPATED GOOD THROUGH 9/20/2013″ and then went on to list attorneys fees and costs that had not actually been incurred.

Beard sued the mortgage servicer and foreclosure attorney alleging that the reinstatement letter’s demand for payment of unincurred fees and costs was false and deceptive in violation of FDCPA § 1692(e)(2), (e)(10) and sought to collect amounts not authorized by any agreement or law in violation of FDCPA § 1692 f(1).

The Court began by noting Kaymark applied the FDCPA’s “least sophisticated consumer” standard to communications even when they are transmitted to a consumer’s attorney. Using this standard, it concluded that when such a consumer read the reinstatement letter she would not understand that the fees and costs had not been incurred. First, because the word “anticipated” was not placed next to each fee and cost that had not been incurred. And second, because “anticipated” was placed immediately prior to “good through 9/20/2013″ which “speaks to the date that payment was due, not the amount of the fees.”

In an earlier decision involving the same foreclosure counsel, the Court noted a similar communication escaped FDCPA liability because “the word anticipated was written in parentheses next to each and every unincurred fee — six times in total.”

Our Webinar Explores the Use and Misuse of Anticipated Fees

Providing statements of the amount due or of the amount required to cure a default – such as in Notices of Intention to Foreclose, periodic statements, and the like — is risky for mortgage servicers under the Kaymarkdecision. And as we predicted earlier this year, Kaymark impacts how a mortgage servicer can include unincurred fees and costs in its communications with defaulted borrowers, at least in the Third Circuit (Delaware, New Jersey, Pennsylvania and the Virgin Islands).