Servicing Fee Suit Allowed to Proceed Despite Failure to Comply with Pre-Suit Notice-and-Cure Requirement

A district court denied a motion to dismiss in a suit regarding servicing fees where the plaintiffs allegedly did not comply with a provision in their mortgage deeds of trust that required them to give their mortgage servicer notice and an opportunity to cure breaches.

The plaintiffs filed a putative class action in the U.S. District Court for the Western District of Washington alleging that their mortgage servicer charged them fees for written payoff quotes despite the fees not being authorized in their mortgage agreements.  The suit brought claims for breach of contract and unjust enrichment, and also asserted violations of the federal Fair Debt Collection Practices Act (FDCPA) and similar state consumer protection laws which prohibit debt collectors from charging fees which are not expressly authorized by the underlying agreement which creates the debt.  The plaintiffs’ deeds of trust contained a provision requiring them—before filing any lawsuit—to provide the servicer with notice and an opportunity to cure any issues arising from the servicer’s actions pursuant to the agreement or any breaches of the agreement or duties owed under the agreement.

The servicer moved to dismiss the suit because, among other things, the plaintiffs failed to provide the servicer with pre-suit notice and an opportunity to cure the alleged improper fees.  The court denied the motion to dismiss, finding that the FDCPA and state statutory claims did not arise from the servicer’s actions pursuant to the agreement and did not involve breaches of a provision or duty owed under the agreement.  Instead, the court held that these claims involved violations of statutory duties which were independent of the agreement, and that the terms of the notice-and-cure provision did not cover breaches of statutory duties.  Notably, the CFPB had filed an amicus brief asserting that the plaintiffs’ FDCPA claims could not be barred by a contractual notice-and-cure provision.

With respect to the non-statutory claims, the court also found that dismissal was not warranted because the plaintiffs had sent a complaint about the fees to the original lender for the mortgage.  While ownership and servicing of the loan had previously been transferred to other entities, the court believed that the original lender could have easily passed the complaint along to the servicer.  In turn, the court considered this to constitute indirect notice and noted that it would be unfair to require unsophisticated consumers to correctly determine the exact right party to whom notice must be given.