SEVENTH CIRCUIT COURT OF APPEALS AFFIRMS PROPERTY INSPECTION FEE

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.

The Seventh Circuit Court of Appeals affirmed and stated that the policy underlying §203.377 is to obligate mortgagees to protect property values in the case of default and not to protect mortgagors from those fees. The Court read mortgage paragraph 8 as enabling the Lender to collect “fees and charges authorized by the Secretary [of HUD]”, and inspection fees are expressly permitted as “necessary” to protect the property value after default. The Court stated that Paragraph 8 did not restrict fees and charges to only those authorized by the Secretary but allowed the lender may collect the §203.377 preservation fees in addition to other fees.

Third DCA Reverse Fee Multiplier

By: Jason D. Silver, Attorney

KK TAKEAWAY:

Attorney fee multipliers create high stakes risks with lots of money on the line when sought. Litigants must put on persuasive evidence and testimony to meet each element and, in the recent appellate opinion discussed below, the relevant market factor test.

BACKGROUND:

Attorney fee multipliers always get the attention of litigators when the topic is brought up. Most attorneys have a memory of their heart rate going up when an opposing lawyer comments “we’re going to seek a multiplier if we win here, you know.” An opinion was just released out of the Third District Court of Appeal in Miami on March 2, 2022 which caught my attention. It stems from a fee award as part of a judgment entered on a foreclosure of an architectural services lien. It carefully analyzed the elements required to obtain a multiplier award and found that one of the elements in particular - difficulty in finding well-qualified, competent counsel to handle the case in the market area - just wasn’t proven. Attorney Fee multipliers were created for situations where, due to an increase in risk and expense in litigation, there increase in the difficulty of finding competent counsel. Thus, the idea of a “Fee Multiplier” was created for those situations where litigants really are at a disadvantage in certain situations. Multipliers are not granted liberally. Indeed, substantial amounts of money are on the line when they are sought. A high stakes evidentiary hearing with extensive preparation, legal argument, briefing, and even additional discovery are needed on the issue.

The aforementioned recent opinion Impex Caribe Corp., Appellant, v. Carl Levin, P.A., etc., et al., Appellees. Additional Party Names: CLA-D, 3D20-1806, 2022 WL 610157, at *2 (Fla. 3d DCA Mar. 2, 2022), focused on the relevant market factor test.

It discussed that “the purpose of the relevant market factor is “to assess, not just whether there are attorneys in any given area, but specifically whether there are attorneys in the relevant market who both have the skills to handle the case effectively and who would have taken the case absent the availability of a contingency fee multiplier.” Impex, et al., challenged the ruling of the