The Maryland Court of Special Appeals recently ruled that the state’s commercial code, which prohibits lenders from collecting property inspection fees from borrowers except under limited circumstances, applies to assignees as well as originating lenders.
The case arose when a borrower defaulted on her mortgage, which had been assigned to Fannie Mae. She accepted a loan modification from her servicer, who then allegedly included fees from post-default property inspections in the loan balance. The borrower filed a putative class action against Fannie Mae and her servicer, claiming that, because assignees do not have “greater rights in mortgage contracts than their assignor had to give them,” assignees do not have the right to charge inspection fees when the assignor did not.
The Maryland commercial code defines a “lender” as a person who “makes” loans. Fannie Mae and the servicer argued that they, as assignees of the loan in question, did not “make” the loan, but merely acquired it from the originating lender, and therefore were not barred by the statute from charging borrowers for inspection fees. The Court of Special Appeals evaluated the language of the commercial code and considered the intent of the legislature when drafting it. The court ultimately agreed with the borrower, stating that reading the statute’s definition literally would “defeat the broader statutory purpose and lead to absurd results.” Thus, the court determined, assignees must be included in the statute’s prohibition against collecting inspection fees from borrowers.