A class action filed last week in the Northern District of Georgia disputes the ability of a lender to charge post-payment interest for certain home mortgage loans when the lender has not provided a very specific disclosure form. In Felix v. SunTrust Mortgage, Inc., No. 16-66, Sarah Felix alleges the she took out an FHA-insured loan in in 2009. When she sold her home in 2015, she requested a payoff statement from the lender. According to Ms. Felix, the lender sent the payoff statement on April 6 and included interest for the entire month of April in the total payoff amount. Though Ms. Felix paid off the loan on April 8, she alleges that she was still charged interest for the entire month of April.
The interest Ms. Felix was allegedly charged from April 8 to April 30 is commonly referred to as post-payment interest—that is, interest which accrues after the principal balance has been paid in full. Ms. Felix’s complaint acknowledges that FHA regulations allow lenders to collect post-payment interest. She contends, however, that a lender must first send a specific disclosure mandated by 24 C.F.R. § 203.558 and that the disclosure must take a very particular form. Ms. Felix contends that she did not receive the required disclosure and that the disclosures she did receive were confusing and inadequate. Ms. Felix does not allege that she would have acted differently had the proper disclosure been used. Instead, she points to a standard FHA mortgage provision which provides that a lender shall only charge interest as permitted by FHA regulations. Because her lender did not use the required disclosure, Ms. Felix contends, the lender breached the terms of the mortgage by collecting post-payment interest.
While the lawsuit names only one lender, Ms. Felix alleges that mortgagors paid over $449 million in post-payment interest in 2012 alone. It seems likely, therefore, that additional lawsuits against other lenders could be forthcoming. In fact, it appears that the same plaintiffs’ counsel filed contemporaneously with Ms. Felix’s action similar actions in the Southern District of Florida against different lenders. Thus, lenders should consider these allegations and whether they should alter any practices to insulate themselves from such lawsuits.