Unethical
Practice #8: Agents who
allow their clients to pay junk fees.
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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.
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appraisal fee or
lender's
appraisal fee. Legitimate, but make sure the lender
isn't charging you more than the appraiser charged.
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appraisal review fee.
Legitimate.
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broker fee. Legitimate.
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commitment fee. Junk.
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credit report or
lender's
credit report. Legitimate. Lenders often do two
credit reports per borrower.
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document preparation fee or
doc
fee or
docs. Legitimate.
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e-mail fee. Junk.
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flood certification fee.
Legitimate.
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loan application fee.
Legitimate.
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loan discount fee.
Legitimate.
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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.
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loan processing fee or lender's
processing fee. Legitimate.
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mortgage insurance premium.
This applies to FHA loans only and is legitimate.
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prepaid interest on loan, property
taxes, and homeowners' insurance. Legitimate.
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reserves deposited with lender.
legitimate.
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sign-up fee. Junk.
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tax service or
lender's tax
escrow service fee. Legitimate.
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underwriting fee or
administrative fee or
admin fee. Legitimate.
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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.
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archive fee. Junk.
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attorney's fee. Legitimate
if you're in a state that uses real estate attorneys.
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closing fee or
title closing
fee or
escrow closing fee or
settlement fee.
Legitimate.
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compliance fee.
Junk.
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condo move-in fee or
co-op
move-in fee. Legitimate.
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co-op apartment fee.
Legitimate.
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courier
fee. Legitimate.
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doc
fee. Legitimate.
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e-commerce fee.
Junk.
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edoc auth fee. Junk.
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email fee. Junk. This
fee is supposed to cover the cost of printing out emails.
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escrow
fee. Legitimate.
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HOA doc fee. Legitimate.
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HOA transfer fee.
Legitimate.
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inspection fees. Legitimate,
but note that you can often get a discount by paying cash at the
time of service.
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loan
tie-in fee. Legitimate if you have two loans closing
at the same time.
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natural hazard disclosure report fee.
Legitimate.
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notary
fee. Legitimate.
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processing
demands. Legitimate.
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reconveyance verification fee.
Junk.
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recording fee. Legitimate.
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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.
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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.
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transfer tax. Legitimate.
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wire
fee. Legitimate.
How to protect yourself
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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.
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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.
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The National Association of Realtors and mystery fees
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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." |
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