Pa. pact sends tough message on padding of settlement fees

Nation's Housing

May 12, 2002|By KENNETH HARNEY

A NEW LEGAL settlement over home loan fees sends an important message to mortgage lenders and consumers: If a lender routinely charges home buyers for services it did not perform - or cannot document - it could find itself in the crosshairs of state law enforcement authorities, if not the federal government.

That point was made resoundingly in a settlement agreement between the Pennsylvania attorney general and a mortgage lender, Home American Credit Inc. The issue was the lender's charge of $150 per loan for an "attorney review fee."

After investigating the company's "business practices," the attorney general concluded that lawyers for the company "did not review each individual loan file prior to the closings" and that the $150 fee "represented to borrowers" that such a legal review had been performed.

As a result, said Attorney General D. Michael Fisher, the fee constituted an "unfair and deceptive act or practice."

As part of the settlement, the lender agreed to refund all $220,849.74 worth of "attorney review fees" it collected from borrowers between Jan. 1, 1999, and February 2001. It also agreed to pay $50,000 to the state government for investigative costs and for "future public protection purposes."

As part of the agreement, Home American Credit, which also does business as Upland Mortgage, denied wrongdoing.

An attorney for the lender did not respond to a telephone request for comment.

The Home American Credit agreement has set off reverberations far beyond Pennsylvania, symbolizing as it does the increasing activity of state agencies and law enforcement personnel in the burgeoning arena of settlement-sheet "junk fees" imposed on consumers.

At the federal level, Mel Martinez, the secretary of housing and urban development, has declared war on closing-fee rip-offs, especially charges imposed when no services are rendered. His agency recently collected or prompted refunds of more than $2 million from companies accused of real estate settlement overcharges or kickbacks.

But federal investigators are short-handed. They have limited resources to check out the large number of allegations made about bogus fees around the country. Investigative resources can stretch much further, however, when consumers or others tip off state authorities to dubious fees or settlement practices.

Although the Pennsylvania attorney general would not disclose what drew the department's attention to Home American Credit, "attorney review fees" are not uncommon.

The same is true of other fees that have come under federal and state scrutiny, including marked-up credit report charges, appraisals, courier expenses, and recordation, "processing" and administrative fees.

Federal law bars charging home buyers and mortgage borrowers fees for services not performed. Nor may they be forced to pay "markups" on services when the lender or settlement agent does nothing additional to justify the higher charge.

However, title insurance companies, escrow agencies and lenders dispute the federal government's interpretations of the law on these issues and are challenging them in court. They say the federal real estate settlement law does not specifically ban inflated fees and markups.

Even if the courts side with lenders and title companies on the specifics of federal law, the industry will still have to deal with challenges to settlement-cost padding at the state level, as the new settlement in Pennsylvania suggests.

Many states have "unfair and deceptive trade practices" statutes on their books. Many of the laws, like Pennsylvania's, seek to protect consumers from deceptive labels on fees, or business practices that are likely to cause "confusion or misunderstanding" about the charges consumers are asked to pay.

What's the significance for buyers? A couple of thoughts: For starters, don't be passive about the mortgage settlement process or the fees you're asked to pay. The era when mortgage customers walked meekly to the closing table and paid every fee without murmur or question - even to the tune of hundreds of dollars in inflated fees - is over.

Home buyers and borrowers have to be smarter. They have to know that the law prohibits fees where few services, if any, are performed to correspond to the dollar amount demanded. They have to demand to see their HUD-1 settlement sheets at least a day before the scheduled closing, go over every proposed charge and ask questions about anything that looks dubious.

If you have evidence that a charge is bogus, contact state regulators or law enforcement authorities. You might - as will nearly 1,500 borrowers in Pennsylvania - get a refund.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at

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