Saturday, April 23, 2011

Mystery Administrative Settlement Fees are Illegal

In order for a real estate broker to justify an administrative brokerage commission fee the broker must identify the related services and show that the charge is reasonable in light of the work performed. This is nearly impossible for a brokerage to do because all settlement related services should already be covered by that other fee…the commission. Read my latest post "HUD's Position on Administrative Broker Fees."

Pittsburgh homebuyers faced with an ABC Fee have a strong two-pronged argument on their side to get the fee waived or refunded (if it has already been paid). If the broker says the ABC Fee is related to services outside of the settlement (paper storage, post-closing document review) then they are in violation of RESPA per the holding in the RealtySouth case. If they argue that it is a fee for settlement related services then it is not reasonable given the commission they are already collecting for the settlement.

But brokerages are smart and are adapting to the RealtySouth case. Their attorneys are advising them that if a separate fee is going to be charged, to carefully identify what services are provided for that fee. But, if the services identified are services that are traditionally covered by another fee, such as the commission, they run into trouble. Once a broker has clearly identified the services being provided for the separate fee, they have to make sure that their contract with the consumer clearly sets out the services being provided for in the separate fee. By trying to delineate some services for the commission and others for the ABC Fee brokers are trying to justify this bogus charge. But a shrewd homebuyer can point out that the broker can’t have it both ways. If the broker simply refuses to waive the fee then contact your own lawyer.

Most brokers just can’t prove the reasonable value of the services covered by the separate fee. In the meantime, there are ways that brokers can still inflate settlement costs legally. But most just figure that the typical homebuyer is not savvy enough to pick up on or contest the illegal ABC Fee. Don’t be that homebuyer.

If you have questions about an ABC Fee that you have encountered, please contact me. We are currently exploring a suit similar to that in the RealtySouth matter. Share this post :
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