by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
BANKING; RESPA; DEMAND AND RECONVEYANCE FEES: The Real Estate Settlement Procedures Act of 1974 (RESPA) does not requires disclosure of demand fees and reconveyance fees.
Bloom v. Martin, 96 C.D.O.S. 1152 (9th Cir. 1996).
RESPA requires that mortgage lenders disclose the costs associated with real estate closings. In a class action suit, plaintiffs alleged that mortgage lenders and other lenders violated RESPA by failing to disclose the assessment of demand fees and reconveyance fees. For example, mortgage lenders typically charge a demand fee for preparing a statement summarizing the outstanding loan balance in connection with a borrower's prepayment of a loan's balance. Other lenders charge a reconveyance fee when they reconvey a deed back to a borrower after a loan is repaid. The court held that a failure to disclose such fees does not violate RESPA. The court noted that RESPA's list of settlement services suggests that the statute's application is limited to costs payable at or before settlement. Because demand and reconveyance fees are assessed after closing, RESPA does not apply, and, therefore, the assessment of such fees need not be disclosed.
Comment 1: (per DIRT participant Howard Lax): "The harder question is whether RESPA applies if the fee is collectedat the closing for a service performed later." There are a number of cases initiating a consideration of this issue making their way through the courts.
Comment 2: The issue resolved in favor of lender here is still pending in a national class action lawsuit in state court in Michigan, and undoubtedly elsewhere as well.
Comment: Following the Rodash decision (Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir. 1994), plaintiffs' lawyers have been scrambling to look for the next great bonanza class action lawsuit involving federal consumer borrowing laws. This must have looked like the perfect entree for these lawyers. For a recent TILA victory for the lenders in the same Circuit that brought us Rodash, see Veale v. Citibank, 85 F.3d 577 (11th Cir. 1996). (Lender need not disclose either an optional express mail fee or the state intangible tax, and need not use a precisely accurate form for disclosure of rescission rights in a refinancing transaction when no "perfect" form exists.)
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