Friday, August 19, 2005

Nebraska homeowners subject to excessive closing costs

8th Circuit has held that HUD does not have authority to limit marked up closing costs under Federal Real Estate Settlement Procedures Act. Are markups illegal? Depends where you live August 19, 2005 Federal Circuits have split on whether RESPA allows lenders to charge borrowers the actual or marked up cost when closing on home loans. Ex: charging for a credit report $65, not $3 Ex: $500 for an appraisal, not $25 for one done onver the internet. HUD has interpreted the Real Estate Settlement Procedures Act to ban markups and extra fees without justification. But title companies and lending industry groups fought HUD's administrative rules, HUD Policy Statement 2001-1, 66 Fed. Reg. 53,052 (Oct. 18, 2001)Summary , and in some cases won. The 3rd Circuit Court of appeals in august sided with HUD, and became the third straight court to do so. Normally that would put the issue to rest, but not this hot potato. That's because three other federal appellate courts, covering 15 states, have ruled the opposite, sanctioning markups without limit within their jurisdictions.Santiago v. GMAC 3rd Circuit court of appeals 8-4-2005 Here's the state-by-state division: * Unlimited markups allowed: Residents of 4th Circuit: Maryland, Virginia, North and South Carolina, West Virginia, 7th Circuit: Illinois, Wisconsin, Indiana, 8th Circuit Haug et al v Bank of America : Iowa,Minnesota, Missouri, Arkansas, Nebraska and North and South Dakota have no federal legal protections against markups. No matter how little your mortgage company paid for documents, tax services, appraisals, messenger services, etc., it is free to charge whatever it thinks it can squeeze out of you. * No markups allowed: 11th Circuit Sosa v. Chase Manhattan Corp., 348 F.3d 979 (11th Cir. 2003): Residents of Florida, Georgia, Alabama, 2nd Circuit Kruse v. Wells Fargo Home Mtge, Inc. (No. 03-7665, 2nd Cir. Sept. 10, 2004). New York, Connecticut, Vermont, 3rd Circuit: Pennsylvania, New Jersey and Delaware live in the current no-markup zone. They can sue lenders and other service providers for markups and expect to prevail in the courts, based on appellate court decisions covering their jurisdictions. * Limbo zone states: If you don't live in or plan to buy property in any of the states already named, you are in a legal limbo-land when it comes to markups. HUD says its rules prevail and you cannot have fees marked up by a lender or title agency unless additional services are rendered to justify the extra costs. But no cases have been decided by the highest federal court in your area, and therefore neither you nor your loan and settlement service providers know whether markups are legal or not. The latest case, handed down Aug. 4 by the U.S. Court of Appeals for the 3rd Circuit (Santiago v. GMAC Mortgage Group Inc.), involved a class action suit against GMAC, one of the country's highest-volume home lenders. A GMAC Mortgage customer alleged that the company marked up various fees in connection with the closing of his loan, and thereby violated HUD's ban. Citing earlier federal appellate court rulings that HUD lacked statutory authority to ban markups, GMAC asked the district court to throw out the class action -- and it did. The home buyers then took the case to the appellate level, where HUD's position on markups was affirmed. A 3-3 split in circuits may lead to Supreme Court Cert.

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