WASHINGTON — To Michigan attorney Robert Constan, the fees he is challenging are "symbolic of what's happening in the mortgage marketplace right now. Consumers aren't watching every line item [on their loan settlement documents]. They see little charges for $20, $30 or $50 and they just let them go. The fees just sort of sneak in there and nobody complains."
They're complaining now--loudly. Constan's firm, Daguanno and Accetura, is one of several around the country that are taking on many of the biggest, best-known American mortgage companies over a series of seemingly trivial fees they routinely charge when they close out a home loan for a refinancing or to sell a house.
The companies under fire include Countrywide Home Loan Inc., Mellon Mortgage Co., Household Finance Corp., Advanta Mortgage Corp. and Citifed Bank Corp., among more than a dozen others. The fees in question carry designations like "reconveyance," "payoff statement," "document prep" or loan "satisfaction" when they appear on borrowers' settlement statements.
But Constan's suit against eight large lenders charges that those fees are illegal, prohibited not only by the standard language of the mortgage documents themselves but also by state law, at least in Michigan.
Lawyers in other states, including the O'Brien Law Firm in Nashua, N.H., Roddy & Grant in Boston, and Edelman & Combs in Chicago, have filed what one lender calls "a blizzard" of suits against industry leaders in the last two months, challenging loan payoff fees on federal and state legal grounds. They argue that the fees amount to disguised illegal prepayment penalties against unsuspecting consumers.
At the core of virtually all the suits is this question: Should you as a mortgage borrower be required to pay any charge--however small--that is not sanctioned by your loan documents?
Consumer attorneys argue that the mortgage documents you sign are your complete, binding contract with the lender. If those documents prohibit or limit charges in connection with the payoff of the loan--other than charges to record the transaction at the county courthouse in most states--you shouldn't be forced to pay them.
Lenders' attorneys defend the fees as legitimate costs of doing business. For example, in the case of the $20 to $30 "fax" charges routinely added to settlement statements, "we are passing on an expense for a service that is requested by the borrower's settlement agent or attorney," said an executive of one national lender, who asked not to be identified. "Our standard practice would be to send the [loan payoff] documents by regular mail. But if the customer's settlement representative doesn't want to depend on the mail and says [to] fax it, we do. But we charge extra."
But $20 fax fees aren't the big target of suits like Constan's. He says that the state's Consumer Protection Act requires the mortgage company, not the consumer, to pay all fees connected with the discharge of the mortgage, including the filing and recordation of the loan payoff with the local register of deeds.
Given that prohibition, Constan asks, "why are borrowers being asked to pay, in one case, a $270 fee for 'recordation and reconveyancing,' or $50 'attorneys' fees, document preparation charges and other items" that can add substantially to the bottom line at a loan payoff.
"What are these fees?" he asked. "Whatever you call them, they're not allowed by state law and by the mortgage documents."
Constan's suit quotes the language contained in the standard mortgage documents signed by the plaintiffs: "Upon payment of all sums secured by this security instrument, lender shall prepare and file a discharge of this security instrument without charge to the borrower."
Does "without charge" mean without any charge whatsoever? This summer's national class-action filings should eventually answer that question, not only in Michigan but in virtually every other state. Check your own home mortgage or deed of trust boilerplate paragraphs before refinancing or paying off your loan. If language to that effect is in your contract, point it out to your settlement agent or lawyer in advance.
With the class action blizzard of '96 raging out there, you may find your lender to be far more flexible on payoff charges than ever before.
Distributed by the Washington Post Writers Group.