Class Action Claims LoanCare Improperly Collected Water Quality Fees From Tenn. Borrowers’ Escrow Accounts

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A proposed class action alleges LoanCare, LLC has for years systematically paid to Tennessee authorities water quality fees taken improperly as a portion of mortgage borrowers’ escrow amounts.

According to the 21-page lawsuit, Virginia Beach-based LoanCare has improperly imposed water quality fees as an escrow requirement and inflated the amounts borrowers must keep in their escrow accounts while collecting interest on the excess funds. 

As part of its mortgage servicing duties, LoanCare collects and remits fees relative to escrow accounts established by borrowers’ deeds of trust, the lawsuit says. Borrowers’ deeds of trust, i.e. their mortgage obligations, contain provisions that relay escrow items, i.e. taxes and assessments, can attain priority as a lien or encumbrance on a property should they go unpaid. 

Critically, the lawsuit relays the water quality fees charged by LoanCare are, in fact, user fees, and not a tax. According to the lawsuit, the Office of the Attorney General of Tennessee has issued a written opinion stating water quality fees “[are] not a tax on a real property” and that municipalities in the state cannot place a lien on a property for a borrower’s failure to pay a water quality fee.

Despite the state’s position, LoanCare has systematically paid water quality fees to state entities as a portion of the escrow amounts for borrowers’ mortgages, the lawsuit claims. Moreover, the defendant has improperly imposed water quality fees as an escrow requirement, meaning the company has thereby inflated the amounts of money borrowers have had to place in their escrow accounts while collecting interest on these excess funds, according to the suit. 

After requesting information from LoanCare, the plaintiff was upset to learn that the defendant had in December 2017 paid Chattanooga a $126.49 water quality fee for his residence, the lawsuit relays. Prior to December 2017, the plaintiff either paid this fee directly to the city or qualified for the United Way of Greater Chattanooga to take care of it as part of the city’s Tax Freeze Program, the case says.

Further, the plaintiff confirmed as of April 2018 that the water quality fee was baked into a “City/Town Tax” charged by LoanCare, causing his escrow payment to increase each month, per the suit. 

The lawsuit says that although the plaintiff’s counsel communicated to LoanCare that it had paid the water quality fee in error, the company assured this was not the case.

“LoanCare did not perform a reasonable investigation into the errors alleged through the Notice of Error as [the plaintiff], through the Notice of Error, provided authority from the City of Chattanooga and the Office of the Attorney General of the State of Tennessee expressly stating that Water Quality Fees could not result in a lien or encumbrance on the Residence and therefore could not constitute ‘Escrowed Items’ per the terms of the Loan,” the complaint reads.

The lawsuit looks to represent:

“All individuals in the United States (1) for whom LoanCare services a residential mortgage loan secured by residential property located in the State of Tennessee, (2) whose mortgage contains Uniform Paragraph 3 of the Fannie/Freddie Uniform Mortgage, (3) whose residence securing the residential mortgage loan is located within a municipality in Tennessee where a Water Quality Fee is assessed, and (4) for whom LoanCare paid a Water Quality Fee as an escrow item.”

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