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Unethical practices that affect buyers:   1  ●  3  ●  4   ●  5   ●  6   ●   7  ●  8   ●  9  ●  10 
Unethical practices that affect sellers:   1  ●  2  ●  3   ●  5   ●  6   ●   7  ●  8   ●  9 

Unethical Practice #8:  Agents who allow their clients to pay junk fees.
Buyers and sellers are often stressed and exhausted during the escrow period, what with all the paperwork, packing, planning, and to-do lists.  This makes them easy game for mortgage brokers and title companies, who sometimes slip junk fees into settlement statements at the last minute.  Agents are supposed to challenge these kinds of fees, but many don't (see my section on kickbacks and gifts).  Indeed, some agents get in on the action and add junk fees of their own.  

Here's how to identify the more common junk fees:

Lender fees (for buyers)

The best time to challenge junk fees or excessive charges is before you commit to a loan.  Just ask the lender for a Good Faith Estimate of loan costs, and use it to shop for the best deal.  Note that some fees go by different names, and that lenders sometimes exploit this by using one name for the legitimate charge (e.g., the underwriting fee) and the alternative name (e.g., the administrative fee) to cover a bogus charge. 

  • appraisal fee or lender's appraisal fee.  Legitimate, but make sure the lender isn't charging you more than the appraiser charged. 
  • appraisal review fee.  Legitimate.
  • broker fee.  Legitimate.
  • commitment fee.  Junk.
  • credit report or lender's credit report.  Legitimate.  Lenders often do two credit reports per borrower.
  • document preparation fee or doc fee or docs.  Legitimate.
  • e-mail fee.  Junk.
  • flood certification fee.  Legitimate.
  • loan application fee.  Legitimate. 
  • loan discount fee.  Legitimate.
  • loan origination fee or points or lender's points or loan service fee or service charge or broker fee.  Legitimate.  These are a fixed percentage of the total loan amount, often 1% (or one point).  If you get charged with a loan service fee or service charge or broker fee, ask that it be renamed a loan origination fee so that it's more clearly tax deductible.
  • loan processing fee or lender's processing fee.  Legitimate. 
  • mortgage insurance premium.  This applies to FHA loans only and is legitimate.
  • prepaid interest on loan, property taxes, and homeowners' insurance.  Legitimate.
  • reserves deposited with lender.  legitimate.
  • sign-up fee.  Junk.
  • tax service or lender's tax escrow service fee.  Legitimate. 
  • underwriting fee or administrative fee or admin fee.  Legitimate. 
  • VA funding fee.  This applies to VA loans only.

Escrow, title, and other fees

Before you sit down to sign escrow documents, ask your agent to request a copy of the HUD-1 statement, which lists your charges.  If you uncover any junk fees, it's best to challenge them immediately, before you show up to sign documents.  Borrowers should make sure that only those loan fees that appeared on the Good Faith Estimate end up on the HUD-1. 

Bring the HUD-1 to the escrow office when you sign, so you can verify that the escrow/title company hasn't slipped in extra charges at the last minute.  Also check the purchase contract, which assigns these costs to either the buyer or seller, to make sure you're not paying the other party's costs.

  • archive fee.  Junk.
  • attorney's fee.  Legitimate if you're in a state that uses real estate attorneys.
  • closing fee or title closing fee or escrow closing fee or settlement fee.  Legitimate.
  • compliance fee.  Junk.
  • condo move-in fee or co-op move-in fee.  Legitimate.
  • co-op apartment fee.  Legitimate.
  • courier fee.  Legitimate.
  • doc fee.  Legitimate.
  • e-commerce fee. Junk.
  • edoc auth fee.  Junk.
  • email fee.  Junk.  This fee is supposed to cover the cost of printing out emails. 
  • escrow fee.  Legitimate.
  • HOA doc fee.  Legitimate.
  • HOA transfer fee.  Legitimate.
  • inspection fees.  Legitimate, but note that you can often get a discount by paying cash at the time of service.
  • loan tie-in fee.  Legitimate if you have two loans closing at the same time.
  • natural hazard disclosure report fee.  Legitimate.
  • notary fee.  Legitimate.
  • processing demands.  Legitimate.
  • reconveyance verification fee.  Junk.
  • recording fee.  Legitimate.
  • title insurance fee.  Legitimate.  There are usually two policies issued, one for the buyer and one for the lender.  There may also be fees for special endorsements to title, like a condo endorsement or an adjustable-rate mortgage endorsement.
  • transaction coordination fee or ABC fee or processing fee or administrative fee.  This is a junk fee that real estate brokerages sometimes throw in to cover the cost of hiring an assistant to help with the paperwork.  Given that your agent is already being richly rewarded with a commission, this surcharge is outrageous and possibly illegal
  • transfer tax.  Legitimate.
  • wire fee.  Legitimate.

How to protect yourself

  • Before signing a listing agreement, make your agent pledge that his or her brokerage will not charge any fees other than the commission.  If your agent says that nothing can be done about these fees, find a new agent.  Any agent who lacks the gumption or negotiating skills to get these fees waived will be totally useless against an aggressive buyers’ agent or rapacious title company. 
  • Ask your agent for a copy of the HUD-1 settlement statement to review before you show up to sign escrow documents.  Ask your agent for a copy of the HUD-1 settlement statement before you show up to sign escrow documents.  Ask about these junk fees. Bring your copy with you when you sign and verify that no fees were added at the last minute.


The National Association of Realtors and mystery fees
As this article notes, a federal district court judge ruled in April 2009 that it violates federal law for real estate brokerages to slip mystery fees into sellers' settlement statements.  The general counsel of the National Association of Realtors, however, defended these fees, saying that brokers “ought to be able to charge what they need to make a profit."



©Lori Alden, 2010.  All rights reserved.