by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

MORTGAGES; RELEASE: A mortgagee is not obligated to execute a release instrument until it has been paid its reasonable attorney's fee incurred as a result of default under the note. Roberts v. Rider, 924 S.W.2d 555 (Mo. Ct. App. 1996).

A mortgage note in the amount of $240,000 contained a provision that the payee was entitled to all costs of collection, including a reasonable attorney's fee. The borrowers were often late in payment, resulting in the payee's acceleration and demand for payment in full, plus title evidence expense totalling $230 and attorney's fees. Subsequent to such demand, the borrowers learned that the payee was requesting an attorney's fee in the amount of $23,000. The fee was based uopn the payee's attorney's interpretation of state law to the effect that 10% of the face amount was a presumptively "reasonable" collection fee.

The borrowers tendered payment of all amounts except the $23,000 and requested execution of a release instrument, which payee refused. Accordingly, the borrowers sought and received a temporary restraining order preventing foreclosure and petitioned for the 10% statutory penalty for failure to provide a release instrument. The trial court enjoined the foreclosure, awarded the plaintiffs $24,000 for the mortgagee's failure to provide the release and granted to the payee an attorney's fee of $320.

The appellate court examined the statutory penalty provision, which provides that a mortgagee shall provide a release when it has received "full satisfaction" or shall forfeit a penalty of 10% of the original debt. Finding that the mortgagee did not receive full satisfaction because the question of a reasonable attorney's fee had not yet been settled, the court held that the mortgagee's duty to provide the release did not arise until the trial court determined that the mortgagee had been paid "full satisfaction". Therefore, the award of the statutory penalty was in error.

The court, however, found no abuse of discretion in establishing the reasonable attorney's fee to be $320, commenting tartly that the trial court heard the payee's attorney's testimony about the hours billed and was in the best position to evaluate the truth of the testimony.

Comment: The payee in this case dodged the bullet of a stautory penalty for refusal to release, but it was a close shave. What if the borrower had elected to pursue a Fair Debt Collection Practices Act claim against the attorney? Authority under the FDCPA indicates that foreclosing attornies are "debt collectors" within the meaning of the Act, and there is liability for misstating the amount of the claim. In light of the wide disparity between the amount of fees actually found by the court and the amount claimed, could the attorney hide behind any kind of "good faith error" defense?

Note that this began as a private foreclosure, rather than a legal action, but it is unlikely that this is a distinction with a difference under the FDCPA.

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