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4 November 2010

Court's Decision Limits Attorney's Fees Upon Reinstatement in Michigan

The Michigan statute1 authorizing collection of attorneys’ fees in foreclosures by advertisement (non-judicial) states, that for mortgages with a balance of $5,000 or more, an attorney’s fee of $75.00 may be included in the amount bid at the sale. The Statute further states:  “But if payment is made after foreclosure proceedings are commenced and before sale is made, only ½ of such attorney's fees shall be allowed.”

It has been generally recognized that the words “if payment is made” pertained only to a payment in full. This was based upon a prior court ruling2 wherein the court addressed a reinstatement as a “negotiation,” and the Lender was entitled to be made whole, including all legal fees incurred up to reinstatement.   Therefore, if the loan was not paid in full, but was only reinstated prior to the sale, most foreclosure firms were including a “reasonable” attorneys’ fee as authorized by the mortgage. 

However, in a recent case3, a federal court in Eastern Michigan issued a decision contradicting this interpretation. In the new case, the borrowers filed an amended complaint, which included 634 paragraphs spanning 145 pages, against two law firms and several lenders.  One of the claims alleged that attorneys’ fees were improperly collected in excess of the $37.50 amount allowed by the statute.  The court was not persuaded by the argument that “reasonable” attorneys’ fees could be collected in connection with a reinstatement, and therefore, denied the defendants’ motion to dismiss that claim.

We are advised that the defendants intend to challenge that decision, presumably by appealing the decision to the Court of Appeals, if the claims are not otherwise dismissed.

Therefore, unless and until there is a reversal or modification of the holding in this case, we must limit the reimbursable attorney’s fee to be included in reinstatement quotes to $37.50, in order to avoid any claim of violation of the Michigan statute or the Fair Debt Collection Practices Act.

____________________
1
600.2431
2 Williams v. Trott (E.D. Mich S.D. Case No. 822 F. Supp 1266 (1993)
3 Kevelighan v. Trott & Trott, (E.D. Mich. S.D., Case No. 09-12543, 2010)

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