A number of Safeguard's clients have posed questions about statutes in Maryland that are believed to prohibit servicers from charging inspection fees to delinquent borrowers.  In response to these inquiries, Safeguard has conducted research into the applicable statutes and case law.  Our findings indicate that the applicable statute is interpreted as prohibiting the assessment of such inspection fees.

Please find statutes MD.CODE ANN. COM. LAW § 12-121 & 12-122 (2003)  md inspection statute.doc, and the case Taylor v. Friedman, 344 Md. 572, 689 A.2d 59 (1997)  md inspection case law.doc, which attempts to interpret the language set forth in § 12-121 to determine if assessing inspection fees for inspections of properties where the secured loan is in default is prohibited in the State of Maryland.  Relevant portions of the statute and the cited case are noted below:

            12-121. Lender's inspection fees

             (a) Defined. -- In this section, the term "lender's inspection fee" means a fee imposed by a lender to pay for a visual inspection of real property.

             (b) Imposition. -- Except as provided in subsection (c) of this section, a lender may not impose a lender's inspection fee in connection with a loan secured by residential real property.

             (c) When permitted. -- A lender's inspection fee may be charged if the inspection is needed to ascertain completion of:

                (1) Construction of a new home; or

                (2) Repairs, alterations, or other work required by the lender. 

            (d) Applicability of section to appraisals. -- This section does not apply to an appraisal of the value of real property by a lender or to fees imposed in connection with an appraisal.

In Taylor v. Friedman, the Court of Special Appeals (Circuit Court for Anne Arundel County) held that the legislative history of § 12-121, did not clearly demonstrate a purpose to limit the prohibition of that section concerning inspection fees to closing costs so as to overrule the plain language of the statute. Taylor v. Friedman set a precedent and has been cited in the following cases:

1. Comptroller of the Treasury v. Kolzig, 375 Md. 562, 826 A.2d 467, 2003 Md. LEXIS    326 (2003);

2. Bell Atl. of Md., Inc. v. Intercom Sys. Corp., 366 Md. 1, 782 A.2d 791, 2001 Md.             LEXIS 779 (2001);

3. Alviani v. Dixon, 365 Md. 95, 775 A.2d 1234, 2001 Md. LEXIS 458 (2001); and 

4. Total Audio-Visual Sys. v. DOL, Licensing & Regulation, 360 Md. 387, 758 A.2d 124,             2000 Md. LEXIS 519, Unemployment Ins. Rep. (CCH) P8484 (2000).

In summary, the legislation has been interpreted and upheld in case law to mean that servicers may not assess fees for property inspections against delinquent borrowers.

To the best of our knowledge, Maryland is the only state that prohibits the assessment of inspection fees.