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Realtors; Closing Agents and Settlement Fees

By Jim Poole

Mortgage and Lending

January 20, 2011 03:52 AM

Realtors; Closing Agents and Settlement Fees - Here is an internal Memo that became privy to me from a well known lender this morning.

"We are seeing that some Realtors are requiring certain Title Agents to act as the Closing Agent with the buyer having no say in the matter. These particular Realtors and Closing Agents make the borrower believe that it is being required by the bank; or in some cases by Fannie Mae who owns the property; neither of which is true. The Closing Agent then charges a $1,500 settlement fee to the buyer on the closing statement when the buyer in actuality could have used a Closing Agent of their own choosing and paid around $500."

"Because the Realtor's closing agent is not a recommended vendor of the bank or lender, the 10% tolerance for fee's listed on the GFE do not apply; so the settlement charge is increased on the HUD-1; BY THE CLOSING AGENT the day of closing."

Is this a LOOP HOLE in the system? As far as I know they can charge whatever they can get the buyers to agree to pay.

To me it's scary to think that the Bank/Lender; who is financing in most cases as much as 95-96.5% of the purchase price has no say in who is reviewing the title work and closing the loans they are funding; are the banks leaving the back door open for further sabotage?

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Michael Nugent

Prudential Califoirnia Realty - Corona, CA

Sells Corona, Eastvale & Riverside

Scary stuff Sir.

Jan 20, 2011 03:57 AM

Indera Coggins

Re/Max 100 - Dunkirk, MD

Jim, the important thing is for the buyers to get a draft preHUD1 from the title company and therefore, their fee will be included. I get it prior to settlement or right when the buyers decide on the company they've choses to do their closing and the same for the lender. I always get the GFE upfront.

Isn't it illegal to tell a buyer that they HAVE to use a company to close or qualify them in order to purchase the property? I always question the listing agent on this. Buyers don't HAVE to use a company affiliated with seller or lender or even the bank.

Just walk away.

Jeanne Kozak

RE/MAX In Action - Martinsburg, WV

REALTOR and Broker/Owner in WV and VA

Often the "carrot" is that if you use the banks title company they will pay for the buyers title insurance. And that is hard to explain to a buyer why he should not take advantage of it. They do not always look at all the other costs, they see "I am getting something for nothing". Indera, you are right, they need to see a preHUD1. I do not believe a buyer can be forced to use someone they do not want to, but he lender can refuse to pay their cost, and that is disclosed up front and/or in the foreclosure addendum that they will sign.

Jan 20, 2011 05:33 AM

Jim Poole

Tampa, FL

Zero Down, USDA Purchase Loans, FHA 203(K) Rehab & VA Streamline Loans

Indera; I don't know if it's illegal but I would guess it would be a violation of the ethics rule; I don't know but it sounds to me like it's a loop hole that at least one lender is trying to expose.

Jan 22, 2011 11:38 PM

Realtors; Closing Agents and Settlement Fees

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