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Appellate Court Refuses to Overturn $200,000 Judgment Against Mortgage Servicer

Arrow leaning against house.jpgMaryland's Court of Special Appeals has let stand a $203,301 default judgment against a mortgage servicer over allegations that it did not comply with the terms of an agreement made with a homeowner in 2009.

Fred Nefflen refinanced his $134,036 mortgage in 1997 with Silver Financial Mortgage Group. Bank One assigned the servicing rights to Nefflen's mortgage loan to Franklin Credit Management Corporation in 2004. Before the assignment to Franklin, Nefflen had modified his loan with Bank one, which resulted in a monthly payment of $1,059 effective May 2003. When Franklin began servicing the loan, it claimed that Nefflen's payment was $1,385. After 10 months of correspondence between Nefflen and Franklin, Franklin sent a letter confirming that the monthly amount due on the loan was the amount agreed to in the loan modification. However, Franklin continued to send statements asserting that Nefflen's loan account was overdue and it reported to credit agencies that Nefflen was delinquent in his payments.

Nefflen filed a lawsuit in the Circuit Court for Frederick County in 2009 that settled. As part of the agreement, Franklin was supposed to delete all derogatory informany from Nefflen's credit reports and report the loan as "current and paid as agreed" and to stop the demands for flood insurance. At one point, Franklin told Nefflen that it had obtained flood insurance on his behalf and would be adding that amount -- $1650 -- to his mortgage payments.

But, the next year, Nefflen again sued Franklin, claiming that Franklin had breached the settlement agreement by failing to delete derogatory information from his credit report and continuing to demand flood insurance. Nefflen said that in so doing, the Maryland Consumer Debt Collection Act (MCDCA) and the Maryland Consumer Protection Act (MCPA) were violated. He also claimed defamation. Service was completed by certified mail upon Franklin's registered agent. Franklin did not file an answer.

A default hearing was held in April 2010. Franklin was not present. Nefflen testified that he was "physically just a wreck sometimes" because of the adverse impact on his credit and the demands from the mortgage insurer for flood insurance. Nefflen said his attempt to buy a new car was unsuccessful because of the negative credit report.

Nefflen's attorney argued that, under the Maryland Consumer Debt Collection Act that a collector who violates the act is liable for any damages caused by the violation including damages for emotional distress or mental anguish.

The trial court found that Franklin had breached the terms of the settlement agreement by requesting that Nefflen obtain flood insurance and twice taxing his account with $1650. The court found that damages for breach of the contract were $3301.84. The court also found a "clear violation" of the Maryland Consumer Credit Reporting Act, ruling that Nefflen had suffered damages from mental anguish, sleepless nights, anxiety and the inability to get appropriate credit. The court said Nefflen was entitled to damages of $100,000. The court also found that Franklin had slandered Nefflen's good name and that Nefflen was entitled to damages for that of $100,000. As a result, the court entered a default judgment on April 29, 2011 for $203,301.84.

Several days later, Franklin filed a motion for a new trial or to alter the judgment, arguing, in part, that Franklin needed Nefflen to request a waiver for flood insurance in order to stop the demands for flood insurance and that it was under the impression that the hearing on damages had been postponed. Franklin also argued that there was no basis to find liability for the counts of defamation, violation of the MCPA and violation of the MCDCA. Franklin did not challenge the court's finding on the count for breach of the settlement agreement. Nefflen opposed the motion, arguing that it lacked merit and that Franklin's legal arguments were "unpersuasive." The circuit court denied the motion. Franklin appealed.

Franklin contended before the appellate court that the circuit court erred - made a mistake - in granting Nefflen judgment on his claims for defamation and violations of the MCDCA and the MCPA because his complaint did not plead legally viable claims. Franklin contended that it was an abuse of discretion for a court to grant a default judgment where a determination as to liability could not be made. Franklin relied on several federal cases interpreting the rules of federal civil procedure in making this assertion. "In Maryland, however, there is no such requirement," the court replied. The court also said that Franklin could not revisit the issue of liability with a motion to revise the judgment made by the trial court.

Franklin Credit Management Corporation v. Fred Nefflen was released on December 20.

Baltimore, Maryland-based Belsky, Weinberg & Horowitz has represented consumers in mortgage, bankruptcy and debt collection cases for many years. Call our attorneys at 410-234-0100 or email us for a free consultation and let us help you to resolve your credit and debt problems.

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