11th Circuit Holds Consumer Lenders Can’t Include Estimated Expenses In Pre Closing Reinstatement or Payoff Letters; What You Should Do About This Remarkable Opinion
December 14, 2015
Authored by: Mark Duedall and Jess Zimmerman
Editor’s Pre- / Post-Script: The original post about this case was, frankly, a bit sarcastic toward the consumer borrower, and made light of a serious matter. (Your author Mark Duedall is to blame for that.) When the post found its way to the borrower’s counsel, he was kind enough to let us know, as Paul Harvey would say, “the rest of the story.” And that was this – the borrower was down on his luck, a hard working public servant, but eventually managed to come up with the funds needed to pay his bills (including this loan) in full. Truly, an individual deserving to be treated fairly in all respects. But when he paid the loan in full, including the estimated future charges, the lender then refused to refund the estimated future charges that the borrower had paid in full (and that the lender did not incur). Yikes; the consumer had no choice but to sue to get back his money for these phantom charges. We here at the Bankruptcy Cave don’t like over-reaching at all, and especially when it comes to how one treats consumers. Anyway, while we still disagree with this ruling from a legal standpoint, we start to kind of like it from a karma standpoint. We appreciate getting more of the story, and the opportunity to correct this post. Lesson learned by the dwellers of the Bankruptcy Cave.
Anyway, on to the post, as corrected . . .
Consumer borrowed money from Lender. Consumer defaulted, and Lender began to foreclose, including all the usual steps: arranging for property inspection, hiring counsel, etc. After about a year, Consumer sought to reinstate the loan, and asked Lender how much it would cost. Lender responded in writing, with an itemized list of expenses to be paid, plus an estimate of additional costs (clearly marked as estimates) that Lender may incur over the next month if it continued to exercise remedies, in case Consumer did not make good on the loan.)
Consumer paid the entire amount required to reinstate the loan, including Lender’s estimated out-of-pocket expenses. A few months later, Lender refunded the estimated expenses which it didn’t incur after all (although Lender first refused any and all efforts by the consumer to get any refund). So what’s the big deal? Why is this unusual? Why are you reading this, and why did we write it? Well, in the 11th Circuit, as of last week, including any estimated future charges or expenses in a reinstatement letter (or a loan payoff, as your authors can’t see any reason why this remarkable ruling wouldn’t also apply to payoff letters) violates the federal Fair Debt Collection Practices Act (FDCPA) if your loan documents don’t clearly allow for that inclusion (and most don’t – we checked). This is the ruling in Prescott v. Seterus, Inc., 2015 U.S. App. LEXIS 20934 (11th Cir. Dec. 3, 2015).
So what can you do about this ruling? First, fix your loan forms. In Prescott, the loan documents listed all the things a consumer must pay to reinstate a loan – estimated out-of-pocket expenses through the payoff date was not included as something Lender could collect as a condition to reinstatement. (And please don’t think “my loan documents surely must be state of the art and already contain this.” The originating lender in this case was one of the largest in the U.S., with top, up-to-date forms and rigid standardization to ensure everyone uses the proper documentation. Its loan documents still did not allow for the inclusion of estimated expenses in payoff statements.) Your loan documents should clearly state that any reinstatement or payoff statement can and will include estimates of charges through the payoff date (which will be promptly refunded if those charges are not actually incurred). Second, change your reinstatement and payoff letters, to provide the same. Third, bear in mind the “least sophisticated consumer” mandate of the FDCPA: your consumer loan documents must spell everything out in painful, page-after-page detail, thus devolving to the lowest common denominator of consumer borrowers.
Your helpful and devoted Bryan Cave Bloggers have blogged before about our efforts to improve lender forms to avoid ridiculous decisions. Of course, this is nothing to think about as the Holidays approach. Go here instead, and pick a wonderful day to celebrate. And then, put a note on your calendar to call us after the start of the year; we do loan document house-cleaning for many clients, and would love to help you out. Until then, enjoy the egg nog and watch out for including estimated out-of-pocket expenses in any payoff or reinstatement letters, unless your loan documents expressly allow it.
 The property was in Florida, a state requiring judicial foreclosure, so exercising remedies against collateral takes forever.
 15 U.S.C. § 1692 et seq.
 Prescott, 2015 U.S. App. LEXIS at *2 and *7.
 Our angst over this maddening opinion is informed by another recent ruling, Kaymark v. Bank of America, 783 F.3d 168 (3d Cir. 2015). In that case, the lender was chastised for including estimates of future costs in a foreclosure complaint. This violated the FDCPA because the estimates were not labelled as such. Id. at 175. So, the Lender in Prescott followed this ruling, and did note which charges in the reinstatement letter were estimates. And then it refunded the amounts not actually incurred a few weeks later. It is still liable for violating the FDCPA. The world has turned upside down, we think.
 Id. at *6-*8 (citing, among other cases, Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1175 n.6 (11th Cir. 1985), holding that you must assume you are dealing with a borrower “on the low side of reasonable capacity.”).