Loancare can't shake allegations that it mishandled borrowers' mortgage prepayments, after a federal appeals court gave new life to a longstanding class action complaint.
The servicer will have to relitigate claims that
Gary and Lisa Tederick sued the servicer in 2022, and appealed last year's loss in their case which has endured numerous legal challenges. While civil counts against Loancare including unjust enrichment have failed, the latest ruling kept intact a claim that the servicer violated a state consumer protection law.
The case has focused on servicing rules around prepayments, particularly the
The National Consumer Law Center and the West Virginia Attorney General meanwhile filed amici briefs on behalf of the borrowers, regarding a legal question whether it was required to prove Loancare's handling of the prepayments was intentional.
In a 35-page opinion, the appellate judges weighed the "intent" portion of the West Virginia law, and appeared to criticize Loancare's legal defense, describing it as "perplexing."
This week's decision did not affect the Tedericks' attempts to certify a class. Thousands of West Virginia-based Loancare customers could be included, according to a past case filing.
Attorneys for the parties, and a spokesperson for Loancare parent Fidelity National Financial, didn't respond to requests for comment Wednesday.
"A disingenuous representation"
The case focuses on the Tedericks' mortgage payments to Loancare from 2019 to 2020, in which they included both their scheduled monthly payments and prepayments in checks. The lawsuit claims Loancare failed to apply the prepayments to the unpaid principal balance before the monthly payments, thereby squeezing a small amount of unearned interest from the homeowners.
The lower court last February granted Loancare summary judgment because the company's still-disputed handling of the prepayments was not intentional, therefore not meeting an "intent" requirement of the law. The appellate court discarded that judgment because it found the lower court had erred in its assessment, and that "intent" was not required.
The judges also rejected Loancare's appeals arguments which did not focus on the "intent" issue at all, but rather raised other questions.
"Loancare's new position is — at the very best — perplexing," wrote U.S. Circuit Judge Robert Bruce King, referring to the company's avoidance of the intent issue. "At worst, it amounts to a disingenuous representation."
The servicer asked the appellate court to rule on two other legal questions, including whether the prepayment handling was appropriate. The handling of the prepayments still isn't clear, the judges said.
The MBA, in its amicus brief last year, suggested a larger decision in the case could have a wider impact on the mortgage market at-large. In its own 35-page filing, the MBA said the Tedericks' interpretation of Fannie guidelines diverges from common industry practice.
"Thus, adopting the Tedericks' interpretation would harm consumers by creating uncertainty in the secondary markets, making mortgage credit less accessible," the trade group said.
