Inclusion Of Estimated Attorney's Fees In Amount Required To Reinstate Mortgage In Foreclosure A 'Fair Debt' Violation? Yes, Says One Federal Appeals Court

DSNews.com reports:

• [I]n Prescott [v. Seterus, Inc.], the Plaintiff, Kevin Prescott, appealed the summary judgment ruling granted in favor of Defendant, Seterus, by the district court. He alleged that the Fair Debt Collection Practices Act (FDCPA) was violated by Seterus’ inclusion of estimated attorney’s fees in his reinstatement quote. Prescott, No.15-10038, 2015 U.S. Dist. LEXIS 20934, at *7 n.6 (11th Cir. Dec. 3, 2015).
  
  The FDCPA, states that “[a] debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt” 15 U.S.C. § 1692f (1996). It further specifies that a violation is considered to be, “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Id. § 1692f(1).
  
  The Court of Appeals evaluated the question from the perspective of the least sophisticated consumer, and ultimately reversed the grant of summary judgment using the rationale that “the least sophisticated consumer would not have understood that the security agreement ‘expressly authorized’ Seterus to charge estimated fees for legal services not yet rendered.” Prescott, 2015 U.S. Dist. LEXIS 20934, at *8.
  
  The Court further ruled that by requiring payment of the estimated attorney’s fees in order to reinstate the loan, Seterus violated section 1692e(2) of the FDCPA. Section 1692e(2) specifies that it is a violation of the FDCPA when there is “[a] false representation of- any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt” 15 U.S.C. § 1692e(2)(B). The court found that because Seterus charged estimated attorney’s fees that were not provided for as part of the security agreement, this was done in violation of the FDCPA.
  
  Although the Eleventh Circuit Court has made it quite clear that it views the inclusion of estimated fees and costs in a reinstatement quote as a violation of the FDCPA, in other jurisdictions it is still common practice to include estimated or projected fees and costs. In particular, this is the practice when a quote has a future good-through date.
  
  When a reinstatement or payoff quote with a future good-through date is provided to a mortgagor, there is always the potential for additional fees and costs to accrue on the mortgagor’s account from the time the quote is issued to the time the quote expires or payment is tendered. In order to account for this, many servicers and attorney firms have made it their practice to include estimated fees and costs in the quotes, and to clearly mark them as estimates. The estimates are used when charges are expected to accrue prior to the good-through date, but the work has not yet been performed.
  
  In light of the decision in Prescott, it is a good idea for servicers to consider taking an alternative approach regarding the inclusion of estimated fees and costs in reinstatement and payoff quotes.
  
  Although the decision is currently only binding on the Eleventh Circuit,(1) it has the potential to have a much farther reach. The only way for servicers and attorneys to ensure that they do not find themselves facing a future FDCPA violation, is to take a proactive approach and remove all estimated and projected fees and costs from reinstatement and payoff quotes.

Source: FDCPA Violations for Estimated Fees and Costs in Reinstatement and Payoff Quotes: Coming to a Court Near You?

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(1) The jurisdiction of the Eleventh Circuit  Court of Appeals includes the states of Florida, Georgia, and Alabama. For the geographic boundary map of all the federal courts, see Geographical Boundaries of U.S. Courts of Appeals and U.S. District Courts.