Time flies... it was further back than I'd remembered... but FOUND IT! (geez I'm good, hehehe...)Posted by an attorney on a broker's industry board;****************************************************SEVENTH CIRCUIT SAYS IT IS OKAY TO CHEAT THE CONSUMERTHE SEVENTH CIRCUIT COURT OF APPEAL SAYS IT IS OKAY TO CHEAT THE CONSUMER NOTWITHSTANDING RESPAThe Seventh Circuit Court of Appeal is now allowing title companies and mortgage lenders to "up-charge" homebuyers and refinancers without limit--that is, to mark up the actual prices of credit reports, appraisals and other real estate closing costs.The court's decision explicitly rejects long-standing opinions by the Department of Housing and Urban Development that such markups are illegal and violate RESPA.If other federal circuits adopt this opinion, consumers will not be allowed to challenge the following under federal law:* The appraisal charge to the lender on your new home purchase was $300. But the lender charges you $450 on the settlement sheet, pocketing the difference.* The actual cost of the credit report to the lender was $15, but the lender marks it up and charges you $60 at closing.* The cost of recording your deed and mortgage at the county courthouse was $38, but at settlement you paid $65.* The actual cost of courier expenses for your loan closing was $15, but on the settlement sheet the item was marked up to $35.Under what has been clear federal agency policy for at least a decade, such "up-charges" or markups, with no additional services rendered, have been illegal.But under the new decision by the 7th U.S. Circuit Court of Appeals, companies that gouge consumers with markups are perfectly within their legal rights. In the case of Echevarria vs. Chicago Title and Trust Co., the court held that intentional overcharges on document filings by the title company were not violations of the federal anti-kickback statute administered by HUD.Deliberately ignoring repeated statements, opinion letters and regulations from HUD since 1992 holding that markups on settlement service items are illegal, the court said federal law itself did not specifically prohibit the practice.The court acknowledged HUD's statements, but said it read the law differently and was not bound by the agency's opinions.The most recent policy statement came in a case two years ago involving Washington Mutual Bank. The general counsel of HUD told a federal court that when lenders "charge consumers marked-up prices (for credit reports or other services) ... without performing any additional services," they are in violation of the law.Absent a reversal by the U.S. Supreme Court, the appellate court's decision is now federal law in the 7th Circuit--the states of Illinois, Wisconsin and Indiana. Other federal appellate courts are likely to cite the new decision as precedent--opening home buyers and refinancers in other parts of the country to unlimited up-charges behind their backs.In credit reports, for instance, some mortgage companies routinely mark up the actual costs for checking credit from the $9 to $15 they pay to credit agencies to the $45 to $60 they charge consumers at settlement.No additional services are involved to justify the markups.In the mounds of paperwork that constitute today's home real estate closings, there are numerous places to tack on extra charges."Nobody ever complains," said a mortgage broker who conceded that every firm he's ever worked for marked up one or more items at closings. Consumers "are in a total daze--they're signing everything you put in front of them," he said.There are serious adverse consequences for consumers as the result of the new decision. .What's the best course of action for the consumer in the wake of the latest decision?Don't be asleep at settlement--demand to know why you're being charged $60 for a credit report instead of much less, and take a hard look at other fees if they seem high.If you live anywhere except the 7th Circuit, you still have a federal legal basis to sue if you find you've been hosed at your closing.MORALDo not try this on your Real Estate License because the DRE laws and regulations still prevent it. TALK ABOUT GIVING THE LENDER AN EDGE UP ON LOANS. IF YOU DO IT AS A BROKER YOU LOSE YOUR LICENSE. IF THE LENDER DOES IT IS OKAY. OR . . . DOES IT MEAN IF YOU ORDER THE CREDIT REPORT AT $15 YOU AS THE BROKER CAN CHARGE $60 FOR IT? Check your state law first before you try. And federal law is only good in the Seventh Circuit at this time COnsisting of among other states Indiana RESPA ANTI-KICKBACK RULE IS NOT VIOLATED IF TITLE COMPANY CHARGES YOU MORE THAN THE COUNTY RECORDER TO RECORD YOUR DOCUMENTS AND KEEPS THE REST OF THE FEE.FACTSPlaintiffs, homebuyers hired Chicago Title & Trust Company to record their home deeds and mortgages. They then sued Chicago Title claiming that it violated sec. 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. sec. 2607(b), by unlawfully splitting fees with the Cook County Recorder. Chicago Title charged Francisco and Barbara Echevarria $25.00 to record their deed and $45.00 to recordtheir mortgage. This charge did not match the Cook County Recorder's fees. The County Recorder required $25.00 to record the Echevarrias' deed, but only $31.00 to record their mortgage. Chicago Title pocketed the $14.00 overcharge. Similarly, Chicago Title charged Bobbie Hall $25.00 to record her deed and $45.00 to record her mortgage. While the Cook County Recorder charged $25.00 to record Hall's deed, it only required $37.00 to record her mortgage. Again, Chicago Title kept the extra $8.00. The Echevarrias and Hall filed a three-count complaint in federal court. They styled their only federal claim under RESPA sec. 8(b), accusing Chicago Title of splitting this amount with the Cook County Recorder by paying the recorder its fee and pocketing the overage. Further, plaintiffs brought two state law fraud claims. Plaintiffs then filed a motion to have the case certified as a class action. Less than a month later, Chicago Title asked the court to dismiss the suit under Fed. R. Civ. P. 12(b)(6) and 12(b)(1). Chicago Title argued that plaintiffs failed to state facts tending to prove that Chicago Title gave an unearned fee to a third party or received an unearned fee from a third party, an essential element of the RESPA claim. As support, Chicago Title relied on Durr v. Intercounty Title Co., 14 F.3d 1183 (7th Cir. 1993) cert. denied 513 U.S. 811 (1994), where on very similar facts the challenged behavior did not constitute fee splitting under RESPA sec. 8(b). Believing himself to be bound by this precedent, the district judge dismissed the RESPA claim. In addition, he dismissed both state law claims because the parties were not diverse and, absent the RESPA claim, the court lacked subject-matter jurisdiction. Plaintiffs appealed.The Seventh Circuit Court of Appeals said . . .Affirm the district court's dismissal. Chicago Title did not split an unearned fee with a third party nor did it receive an unearned fee from a third party. It charged the borrower for its' services and paid the recorder exactly what it was owed for its services. (Echevarria, Bobbie L. Hall v. Chicago Title & Trust Company, United States Court of Appeals, 7th Cir. No. 00-4087 Northern District of Illinois, Eastern Division. No. 00 C 3949--James B. Zagel, Judge. July 5, 2001)MORALSo if the broker charged the borrower a fee and paid it to the lender, instead of the lender giving the broker the fee, this would be acceptable?August 20, 2001 ***********************************************************Dave here...Crazy, huh?Cheers,DWD
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