WBK Industry News - Litigation Developments

Court Denies Dismissal of FDCPA Claim for Including Unmatured Attorneys’ Fees in Demand

A federal judge in Virginia recently denied dismissal of a plaintiff’s claim that a defendant noteholder and his attorneys violated the Fair Debt Collection Practices Act (FDCPA) by including a demand for payment of attorneys’ fees when the promissory note only allowed the payment of such fees upon the loan’s maturity.

The plaintiff had obtained a loan from the defendant noteholder in order to buy a property.  The loan was evidenced by a purchase money note which included several line-item conditions, including one which required the plaintiff to pay the noteholder’s attorney’s fees and 20 percent of the amount then due on the note upon his default.  On the day he obtained the loan, the plaintiff also signed (1) a deed of trust to secure the note, which was recorded in the public land records and became a lien on the home; and (2) a deed in lieu of foreclosure.  The plaintiff defaulted on the loan and received a notice of default from the lender seeking the payment of accrued interest on the loan, late charges, and attorney’s fees.  The notice also stated that the noteholder would exercise its right to record the deed in lieu of foreclosure if the plaintiff failed to cure the default by payment of the full amount due.  The notice disclosed that the letter was an attempt to collect a debt, that the plaintiff had 30 days to dispute the validity of the debt in writing, and that the noteholder may institute court action if the debt was not disputed.  The plaintiff failed to cure the default in the time allotted.  A month later, the noteholder sent a second notice of default which requested payment of the note in full based on the plaintiff’s failure to cure the default in the manner originally requested.  The noteholder notified the plaintiff that, through the Trustee, the noteholder would “invoke the power of sale and other remedies permitted by applicable law” and stated that the noteholder may institute court action if the plaintiff did not dispute the debt within 30 days.

The plaintiff filed a complaint asserting six causes of action, including that the defendants violated the FDCPA by demanding payment of attorneys’ fees when the Note only allowed such fees upon the loan’s maturity.  Both the defendant noteholder and the law firm defendants filed motions to dismiss the plaintiff’s claims.

With regard to the defendant noteholder’s motion to dismiss, the court dismissed all six of Plaintiff’s claims.  However, the court allowed the plaintiff’s FDCPA claim regarding attorneys’ fees to go forward against the law firm defendants.  The court found that the plaintiff stated a claim for relief, plausible on its face, that the defendants “misrepresented the terms of the Loan Agreements as to [the plaintiff’s] total amount due by preemptively including attorneys’ fees.” 

The case is Walker v. Hill, et al., No. 3:20-cv-00149-MHL (E.D. Va.).  The law firm defendants have answered the Complaint and the case is going.