Litigation Byte

EDVA Grants Summary Judgment in Favor of Defendant in Putative Class Action Involving Allocation of Mortgage Payments

March 19, 2025

On February 24, 2025, the Eastern District of Virginia granted summary judgment in favor of Defendant LoanCare, LLC, on a putative class action alleging that LoanCare violated fair debt collection provisions of the West Virginia Consumer Credit and Protection Act, W. Va. Code § 46A-2-122 et seq. (WVCCPA).

In sum and substance, Plaintiffs Gary and Lisa Tederick alleged that LoanCare improperly and unlawfully misapplied mortgage principal payments to the interest of the loan. According to the Court, under the language of the loan and the plain language of the WVCCPA, however, Plaintiffs could not state a violation of the Act, and therefore, summary judgment was granted.

Background

In 2002, Plaintiffs Gary and Lisa Tederick built their home in Hedgesville, West Virginia. On March 4, 2004, the Tedericks refinanced their home by taking out a loan from Mid-States Financial Group, Inc., using a Note backed by a Deed of Trust held by Fannie Mae. The terms of the loan required the Tedericks to make scheduled monthly payments of $875.36 beginning May 1, 2004.

The terms of the loan required that any interest was to be “charged on unpaid principal until the full amount of Principal has been paid.” The Note further stated that “[e]ach monthly payment will be applied as of its scheduled due date and will be applied to interest before Principal,” and the Tedericks were entitled to “make payments of Principal at any time before they are due, known as a “Prepayment.” Notably, the Tedericks could not designate a payment as a Prepayment if they had not made all the monthly payments due under the note. Under the terms, the note holder was also authorized “to apply [a] Prepayment to the accrued and unpaid interest on the Prepayment amount before applying [the] Prepayment to reduce the Principal amount of the Note.”

Nonetheless, throughout the life of the loan, the Tedericks frequently made Prepayments, often writing one check containing their monthly payment amount, along with a Prepayment amount, and writing in the memo line that a Prepayment amount was included in the total. Between 2005 and 2020, the Tedericks wrote these dual checks 180 times before their monthly payment due date. Unbeknownst to the Tedericks, for at least 152 of those payments, the servicer applied the scheduled monthly payment, then the Prepayment, as opposed to the Prepayment first.

Around April 2019, LoanCare became the subservicer of the Tedericks’ mortgage loan and began accepting and applying their loan payments. At that time, the Tedericks had learned of the issue with their dual payments and contacted LoanCare to inform them that previous servicers had misapplied their Prepayments and requested that LoanCare correct the account to accurately reflect the amount of interest on the loan. According to the Tedericks, a customer service representative assured the Tedericks that the issue had been rectified. This was not the case; LoanCare continued to apply payments in the same manner as previous servicers, and the Tedericks sued.

Analysis

According to the Court, a simple question was at issue: Could the Tedericks obtain relief under the WVCCPA?

The Court first examined the language of the WVCCPA. The Tedericks argued that LoanCare violated Sections 46A-2-127(d) and 46A-2-128 of the Act.

In examining the specific language of the Act, the Court stated:

The dispositive text of Section 127 of the WVCCPA prohibits debt collectors from using “any fraudulent, deceptive or misleading representation or means to collect claims or to obtain information concerning consumers.” W. Va. Code § 46A-2-127. The statute lists instances in which a debt collector would be liable under the Act. Subsection (d) prohibits “[a]ny false representation or implication of the character, extent or amount of a claim against a consumer, or of its status in any legal proceeding.” W. Va. Code § 46A-2-127(d). Thus, the Tedericks must be the victim of a “false representation or implication” at the hands of LoanCare. W. Va. Code § 46A-2-127(d). In other words, LoanCare must have incorrectly applied the Prepayments. Section 128 states that no debt collector may use unfair or unconscionable means to collect or attempt to collect any claim. W. Va. Code § 46A-2-128.

…

The Court concludes that LoanCare’s conduct, even if they misapplied the Prepayments, does not rise to the level of a “false representation.”

The Court next examined the purpose of the WVCCPA and further concluded that the Tedericks’ claims could not continue. According to the Court, the purpose of the WVCCPA is “to protect consumers from unfair, illegal, and deceptive acts or practices by providing an avenue of relief for consumers who would otherwise have difficulty proving their case under a more traditional cause of action.” Boczek v. Pentagon Fed. Credit Union, 725 F. Supp. 3d 542, 546 (N.D.W. Va. 2024).

Moreover, according to the Court, the question under the act was not whether LoanCare misapplied the Tedericks’ Prepayments, resulting in LoanCare receiving unearned interest, but whether LoanCare meant to misapply the payments. According to the Court, nothing in the record suggested that LoanCare engaged in “fraudulent, deceptive or misleading representations or means to collect or attempt to collect claims or to obtain information concerning consumers.” W. Va. Code § 46A-2-127. Likewise, there is nothing “unfair or unconscionable” about the way LoanCare applied the Prepayments – W. Va. Code § 46A-2-128 – and they had, in fact, applied payments in an effort to comply with the language of the Fannie Mae Servicing Guidelines.  

In summary, even if LoanCare had misapplied payments (which is a matter of debate), the Tedericks still could not proceed with their claim because, under the WVCCPA, they could not show that the conduct arose to “fraudulent, deceptive, or misleading” conduct required under the law.