Seventh Circuit Court of Appeals affirms property inspection fee By: Elliott Halsey, Attorney
KK TAKEAWAY: Lenders
should
ensure
their
mortgage
documents authorize expenditures necessary to protect the property value upon default. Even for occupied properties, FHA mortgages expressly allow necessary inspection and preservation charges made in fulfilling the monthly inspection duties pursuant to 24 CFR §203.377.
BACKGROUND: A recent Seventh Circuit case affirmed the right of a loan servicer to charge a property inspection fee at default.
In Leszanczuk v. Carrington
Mortgage Services, LLC, 21 F.4th 933 (7th Cir. Dec. 28, 2021), the borrower challenged the inspection fee on the basis that she occupied the property at the time of inspection. The borrower filed a class action case for breach of contract and violation of Illinois’s consumer fraud statute, alleging breach of the mortgage contract and consumer fraud for the $20.00 inspection fee charges. The mortgage was an FHA-insured loan, and the district court noted that HUD regulation 24 CFR §203.377 imposes lender responsibility to inspect the subject property monthly after default. Occupied properties are not excepted from the 203.377 duties. The complaint was dismissed by the district court, which also held that charging the fee did not offend public policy and was not oppressive, so was not an unfair practice. 14 | IN THE
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