By: Benny Kass
DEAR BENNY: You often advise home buyers to refuse to pay junk fees at settlement, but how is it done? We are about to close on a refinance. We have done this once before about eight years ago. We have an estimated settlement statement, but the actual settlement statement may differ significantly when we actually get to closing if the lender has added the infamous "junk" fees.
So at the settlement table what do we do? Do we refuse to sign unless the fees are removed and risk having to walk away from the deal? If we walk away (i.e., if the lender refuses to back down), then we lose the underwriting and appraisal fees and have to find a new lender and go through the whole process again, perhaps with the same result. Is there some other strategy?
I've always thought your advice to refuse to pay these fees made sense, but I've never quite understood how one would act on that advice during the settlement. --S.A.
DEAR S.A.: There are too many "junk" fees imposed by lenders and title companies (also called "escrow") when you go to settlement -- either to buy a house or refinance an existing loan.
Some of these fees include (1) overcharges on credit reports, (2) tax escrow service, (3) document preparation, or (4) underwriting fee. I am sure that some of my lender friends will vigorously disagree with me, but that's my opinion, and as they say, "I am sticking to it."
You are correct. In the past, when people went to the settlement/closing table, they suddenly were hit with a number of fees that were not previously disclosed.
In fact, I have been in too many settlements over the years where those fees were so high that the borrower/buyer had to scramble to get the extra dollars to avoid losing the property or the favorable loan.
But, there is good news. Effective Jan. 1, 2010, all lenders for residential loans are required to provide their potential customers with a comprehensive good faith estimate (GFE). This document spells out, in relatively simple terms, all of the various charges (fees and all) that will have to be collected at settlement.
So, when you go to closing, don't sign the GFE until you carefully review and compare it with your HUD-1 settlement statement.
If there are new charges (or even higher charges), immediately contact the lender from the settlement table and get an explanation. If you are not satisfied, you have two alternatives: (1) cancel the deal or (2) complete settlement and file a complaint with the Department of Housing and Urban Development.
For more information, visit HUD's Web site at http://www.hud.gov/offices/hsg/ramh/res/gfestimate.pdf.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column.