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August 26, 2002
Mortgage Lender Licensees -
Padded closing costs: Fee Overcharges, Kickbacks & Unearned Fees
A recent ruling by the United States Court of Appeals for the Fourth Circuit that certain
padded closing costs are legal under federal law may have prompted
misunderstanding in the mortgage industry in Maryland. The
decision should not be interpreted as a permit or greenlight
for mortgage lenders to overcharge Maryland residents for third party
fees.
In brief, a consumer filed an action against Crossland Mortgage Corporation alleging a
violation under Section 8(b) of the Real Estate Settlement Procedures
Act ("RESPA"). The lender allegedly overcharged the consumer
for the credit report and retained the excess amount for itself. The
court rejected the consumer’s argument and ruled that the RESPA
anti-kickback provision was not violated. The decision might have been
different had the consumer not filed for relief under this anti-kickback
provision. Nevertheless, the final ruling has no impact on Maryland
laws or regulations. The decision does not preempt Maryland
regulations, which specifically prohibit the retention of any portion of
fees over and above the actual charge to be paid to a third party. Under
Maryland regulations, all fees collected for third party services must
be actual and verifiable. No other charges may be added.
COMAR
09.03.06.09(A) provides:
"A licensee may not retain a fee, or any portion of a fee, collected from
the borrower if the fee is represented as a charge to be paid to
a third party for services in connection with the loan."
The Commissioner will continue to investigate allegations of padded closing costs involving
Maryland licensed mortgage lenders and Maryland residents. Compliance
examinations will continue to review pass through charges, consumer
invoices, or payments to third parties. Violations of this regulation
are subject to the enforcement provisions of Financial Institutions
Article, Section
2-115 and Section
11-517, including the suspension or revocation of a license,
imposing financial penalties, or requiring the restitution of money or property to any person aggrieved by the violation.
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