Junk mortgage fees difficult to avoid

Long, long, ago, I arranged a loan with a lender "friend" to buy a piece of investment property. My lender and I agreed on the interest rate and discount points, and I blithely went to the closing.

As I reviewed the closing statement, everything was in order until I got to line 28, where the word "photographs" was inserted.

On that same line was a charge for $350! In my conversation with the lender about it, I used two letters of the alphabet more frequently than the others. One was "B." The other was "S."

The seller didn't care much about my lender problems of course, so I had no choice but to close as agreed and pay my former friend for the photographs.

Like all my more expensive lessons, I learned this one well. When you take out a mortgage, know precisely what your costs will be.

Today, the Feds have intervened, requiring that lenders provide a "Good Faith Estimate" which purports to disclose any fees the lender might come up with.

Unfortunately, most consumers only take out a mortgage a couple of times in their lives, so they might not know what they are looking at on the estimate, or what is reasonable. And, the estimate only applies to lending fees, not those charged by real estate brokers, title companies or other parties to the transaction.

Not long ago, I spoke to a meeting of my friends in the Certified Closers organization.

They are the calm and collected people from the title industry who gather all the data and put it together for a closing, then sit at the head of the table and make it all happen. Boy, do they have some great stories.

At the end of my talk, I told them about my experience with the $350 photos. I asked them to share with me what BS fees they saw on closing statements that I might share with you in this column.

Before I give you their list, let me say this is America. Anybody should be able to charge anyone for anything as long as the person paying understands what he or she is paying and agrees. I get heartburn when buyers and sellers don't know that there are options, which is why I'm writing this column.

The newest fee the closers found disdainful they call a "Regulatory Compliance" fee. They tell me it's a fee charged by some real estate brokers to cover the broker's costs for keeping real estate documents after the closing.

The real estate commission wants brokers to maintain those records (Nothing new here, it always has), but apparently now some buyers and sellers will be paying for it in addition to the commission paid at closing.

That could cost as much as $500.

The closers tell me they have also been amazed at what some lenders charge for items variously called processing, document preparation, document review and other euphemisms. Willing, unsuspecting borrowers pay thousands of dollars more than what other lenders charge in fees and interest rates. Get a good explanation of all those fees on the "Good Faith Estimate" and compare directly to other lenders offerings.

Another crazy fee is called a "Table Funding" fee. In California, they have escrowed closings where no money changes hands until after the closing and the deed has been filed. In Colorado, we close and you get a check at the table.

But, if you use a California lender, you may well be charged a fee up to $500 for wiring your money to the closing.

Title companies are not above the fray, but you or your agent will have to work a little harder to understand what their charges are. An "endorsement" is added to a title policy to cover a potential claim against the property, like someone coming on your property to mine for gold.

Usually, those are required by the lender according to its own standards. Unfortunately, some title companies just add every endorsement under the sun to the basic coverage to be charged to the borrower whether the borrower's lender has required it or not.

Unless you have a savvy real estate agent or attorney to tell them to delete all the bogus endorsements, you could be paying hundreds of dollars that are absolutely unnecessary.

Every business has to make a profit or it can't stay in business and certainly can't provide you with good service.

Whether it's document preparation, endorsements, discount points, origination fees, or compliance fees is not the issue. What's important is that you know what's going to be on that closing statement and how it compares to the fees being charged by other service providers in the real estate industry.

Do your homework. Ask questions. Compare costs. Demand to see the closing statement way BEFORE the closing to make sure no unauthorized charges have been slipped in.

Have your lender and your Realtor and/or lawyer explain the costs to you. It is no exaggeration to say that on almost every preliminary closing sheet we see we have to call and have some of these charges removed for the buyer or the seller.

Your home is probably the most expensive purchase of your life. You should do a little more research than you would when buying a lawnmower.

- Stuart Scott, 578-8800, [email protected]. Scott owns Stuart Scott Ltd., a Colorado Springs-based residential real estate agency.

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