The Northern District of Illinois recently dismissed an action filed by mortgagor Jason Roberts (“Roberts”) against his servicer for alleged violations of the Fair Debt Collections Practices Act (“FDCPA”)ⁱ “and state law.” Roberts v. Carrington Mortgage Services, LLC, 19-CV-2355, 2020 WL 6565247, *1 (N.D. Ill. Nov. 9, 2020). Carrington Mortgage Services, LLC (“Carrington”) took over servicing of Roberts’ FHAⁱⁱ loan in February 2018.ⁱⁱⁱ When Carrington started servicing Roberts’ loan it was already in default so Carrington conducted several property inspections to determine whether the property was occupied and to ensure it was not in disrepair.^iv These (at least monthly) inspection fees were passed onto Roberts and included in his monthly mortgage statements.^v

Concerned about “losing his home” and the “fees being added to his balance every month”, Roberts paid the loan off in August 2019 and then filed a proposed class action against Carrington.^vi The complaint alleged multiple violations of the FDCPA, Illinois’ Consumer Fraud and Deceptive Business Practices Act and included a breach of contract claim.^vii One of these claims was based on two letters Carrington sent to Roberts’ counsel wherein conflicting information was given about the current owner of Roberts’ loan.^viii All the other claims were based on alleged HUD violations stemming from the property inspection fees. Roberts’ mortgage included the following provision regarding HUD: “Lender may collect fees and charges authorized by the Secretary.”^ix Roberts argued this provision was sufficient to incorporate all HUD regulations into the mortgage, including the provision that allegedly prohibited multiple property inspections if the lender knew the property was occupied.^x

Carrington moved to dismiss the complaint relying on the plain language of the mortgage which expressly permitted the servicer to “‘do or pay whatever is necessary to protect the value of the Property and [the mortgagor’s] rights in the Property.’”^xi The mortgage also specifically provided for property inspections upon default.^xii The Northern District agreed with Carrington. The Court, noting neither party “identified any on-point precedent from the Seventh Circuit or Illinois Supreme Court,” relied on cases from its district to conclude the property inspections were “necessary.”^xiii The Court interpreted a “necessary” expense as any expense “the mortgagor actually incurred rather than an expense that is considered ‘reasonable’ according to some other criteria.”^xiv The Court decided dismissal was appropriate because even accepting the allegations of the complaint as true, Carrington acted in compliance with the mortgage when it charged the property inspection fees. Roberts failed to plead a cause of action.

The Court rejected Roberts’ position that references within the mortgage to HUD (or “the Secretary”) trumped the parties’ contract terms and limited what could be charged to Roberts.^xv The Court explained “there must be an express intent to incorporate” and that “mere reference to another contract or document is not sufficient to incorporate its terms into a contract.”^xvi The Court also found the two letters Carrington sent with conflicting ownership information did not violate the FDCPA because the letters did not “deceive or mislead” Roberts’ counsel.^xvii The Court explained the letters clearly identified Carrington as the servicer and Roberts’ counsel had the means to determine whether the incorrectly identified owner had any demand against Roberts since counsel “had communicated with [Carrington] about only a month prior.”^xviii

The Court dismissed Roberts’ complaint without prejudice noting Roberts could move to amend if he could allege Carrington passed on expenses that it did not actually incur. If such an allegation could be proven, the expenses would no longer be considered “necessary” and passing them on to Roberts could ostensibly provide the basis for a breach of contract claim.

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1. The Northern District of Illinois recently dismissed an action filed by mortgagor Jason Roberts (“Roberts”) against his servicer (“Carrington”) for alleged violations of state law and the Fair Debt Collections Practices Act (“FDCPA”). Roberts v. Carrington Mortgage Services, LLC, 19-CV-2355, 2020 WL 6565247 (N.D. Ill. Nov. 9, 2020). Roberts alleged that Carrington was prohibited from charging multiple property inspection fees under HUD because Carrington knew Roberts occupied the property.

2. The Court found Carrington properly conducted and charged Roberts for the property inspections based on the plain language of the mortgage which expressly permitted the servicer to “‘do or pay whatever is necessary to protect the value of the Property and [the mortgagor’s] rights in the Property.’” This included property inspections upon default. The Court rejected Roberts’ position that references within the mortgage to HUD (or “the Secretary”) trumped the parties’ contract terms and limited what could be charged to Roberts.

3. The Court dismissed Roberts’ complaint without prejudice noting Roberts could move to amend if he could allege Carrington passed on expenses that it did not actually incur. If such an allegation could be proven, the expenses would no longer be considered “necessary” and passing them on to Roberts could ostensibly provide the basis for a breach of contract claim.