The state Division of Banks has warned mortgage lenders that it’s their responsibility to monitor settlement attorneys to make sure they’re not charging unearned fees.
In a letter to the Massachusetts Mortgage Bankers Association this week, the agency warned "[d]ivision staff has identified issues with the assessment of fees by settlement agents in mortgage loan transactions. In particular, concerns have been raised in connection with the improper or duplicate assessment of mortgage discharge or release recording fees, specifically involving refinance mortgage transactions."
When a loan is refinanced with a different lender, a notice must be filed with the Registry of Deeds to record the fact that the original lender no longer has a lien on the property. If the original lender takes care of this necessity in the process of the refinancing, the settlement attorney for the new lender shouldn’t charge for the same task, the division explained. Such double-dipping is a violation of the federal Real Estate Settlement Procedures Act (RESPA), and the division expects mortgage lenders to be on the lookout for errors by the settlement attorneys they hire.
The industry ought to take this warning by the division in stride, said Jerami Marshal, chair of the MMBA.
"The closing attorney represents the mortgage lender in any residential real estate transaction, and as such it’s the lender’s responsibility to ensure that everything in the file is valid," Marshal told Banker & Tradesman. "It’s what we’ve been doing for years."
Mike Krone, vice president and chief operating officer of Kriss Law in Newton, cautioned however, that sometimes when there may appear to be a double-charge, the mistake ought to be laid at the feet of the original lender.
"Often times lenders charge to record the discharge but either do not do so or record an improper discharge. This then puts the onus on the closing attorney to obtain and record a proper discharge," Krone wrote in an email. "Often the discharging lender will not pay to re-record and the borrower will not either. This leaves the closing attorney stuck with paying for the recording that they did not collect a fee for."
Krone has drawn up a form to be sent to borrowers warning them of this possibility.
The state agency emphasized the importance of the issue for lenders, saying that "adequate oversight of third-party service providers is a vital component" of the division’s assessment of an institution’s compliance, and it will be monitoring lenders to make sure they act on violations in a timely manner.
