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Firm faces Fair Debt claim for early fee demand

Judge M. Hannah Lauck

Judge M. Hannah Lauck

A law firm that sought attorneys’ fees before they came due under a homebuyer’s promissory note now faces discovery in an action under the federal Fair Debt Collection Practices Act.

The count against the firm is the only claim to survive the initial hurdle in a homeowner’s action claiming wrongful collection practices, under a ruling by U.S. District Judge M. Hannah Lauck.

Gregory A.E. Walker contends the lender and the lawyers fraudulently induced him to sign a deed in lieu of foreclosure on his 3,100 square foot home in the Beaverdam area of Hanover County. He says any threats to record such a deed amounted to violations of the FDCPA.

Lauck’s 32-page, March 19 opinion is Walker v. Hill (VLW 021-3-129).

Fee demand of $2,450

Walker bought the home in March 2019 using a $350,000 loan from Sharon Hill, according to Lauck’s opinion. The note he signed provided that, should he default, he agreed to a collection attorney’s fee of 20% of the then-due amount. Among the papers Walker signed was a deed in lieu of foreclosure.

Walker defaulted on the loan in the fall of 2019, the opinion said. He got a Feb. 20, 2020, letter from the lawyers – Lynn Murphy Tucker and her firm, Dankos, Gordon & Tucker PC – serving as a notice of default and seeking past due payments and fees totaling $14,700.

The demand included attorneys’ fees of $2,450.

The letter said if the default were not cured by March 6 the noteholder intended to record the deed in lieu of foreclosure. The letter concluded with a typical notice that began “This is an attempt to collect a debt.”

In his second amended complaint, Walker alleged he signed only the second page of the deed in lieu of foreclosure. He brought four counts against Hill and two against the lawyer and her firm. Lauck found all claims wanting except the one alleging a premature demand for attorneys’ fees.

Debt not matured

Lauck said Walker plausibly alleged the lawyers acted as debt collectors when they went beyond merely enforcing a security interest in the home. Once Walker signed the loan agreements and created an obligation to pay money, Walker became the object of collection activity arising from a consumer debt, Lauck concluded, employing “the standard FDCPA analysis.”

Lauck rejected the lawyers’ attempts to claim they acted only as a law firm retained solely to execute a nonjudicial foreclosure. The lawyers admitted involvement in preparing the loan papers before Walker ever signed the documents. Their letter expressly said, “This is an attempt to collect a debt,” Lauck noted, concluding the lawyers fall under the FDCPA’s definition of “debt collector[s].”

While the judge concluded the lawsuit did not plausibly allege the lawyers violated the FDCPA by threatening to record the deed in lieu of foreclosure, she said the allegations could support a “reasonable inference” that the lawyers violated the FDCPA by demanding attorneys’ fees before such fees became due under terms of the note.

The alleged attorney fee violation was plainly plead, Lauck said. The note said if the debt were not paid “as it matures” and were placed with an attorney for collection, the defendants could demand attorneys’ fees for the collection work, the judge summarized.

The lawyers’ notice in February 2020 warned that acceleration and a call of the note in full would occur only if the default remained uncured as of March 6, the judge said.

“As such, the loan had not yet ‘mature[d]’ by the date of the February 2020 Notice,” the judge wrote.

“Viewing the Second Amended Complaint as true and in a light most favorable to Walker, Defendants misstated Walker’s total amount due by demanding attorneys’ fees at 20% of the amount due for $2,450 total,” Lauck said. The misstatement was “material,” the judge concluded.

Walker is represented by Henry W. McLaughlin III of Richmond, who declined to comment. The lawyers are represented by Julie S. Palmer of Richmond, who was not available for comment. Hill – now dismissed – was represented by Michele Mulligan of Richmond.