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'Normal' Fees Under Legal Attack

by Lew Sichelman

Although the mortgage business has won most of the court room battles to date concerning their fees and other matters, the plaintiffs' bar continues to fight the war.

"One of the consequences of kicking butt on yield spread premium cases is that there's now a whole gang of plaintiffs' attorney looking around for things to do," said Robert Pratte, a director in the Minneapolis law firm of Briggs and Morgan.

In a recent presentation at the Mortgage Bankers Associations' Legal Issues and Regulatory Compliance Conference in Coral Gables, Fla.., Pratte outlined several normal, everyday activities that are coming under fire in courtrooms around the land:

Document Preparation Fees – This charge for a non-lawyer's completion of standardized mortgage papers "invites scrutiny" because it can be seen as the unauthorized practice of law, Pratte said.

"Any 14-year-old can fill out these documents; they're administrative at best," he told the conference. "The question is, do you need to be a lawyer?" So far, the results on this question have been mixed, but litigation is ongoing in several states.

Prepayment Penalties – The issue of whether a prepayment penalty is governed by the loan documents is "a new and creative area" that is being attacked on "a number of different fronts," said Pratte, who chairs his firm's mortgage banking practice group.

Statutory provisions on such sanctions run the gamut from absolute prohibitions to limits on the amount, but there are cases pending in several states in which borrowers contend that the rules as set forth in their loan documents have been breached.

"Safeguards and due diligence procedures need to be in place to insure that proper checks and balances are in place to determine whether prepayment penalties are part of the loan," the Minneapolis attorney cautioned lenders.

Bi-Weekly Payments – In an "unusual twist," some borrowers' are challenging their lenders' fees for setting up bi-weekly payment schedules and charges for automatic withdrawals of their payments as "defacto" prepayment penalties.

Two such cases are pending in Minnesota, which allows early payment of home mortgages without penalty.

Though "there is very little case law of this as yet," Pratte said the cases strike him as "kinda silly." Nevertheless, he warned lenders that the issue illustrates the new and creative ways in which lawyers for the other side are to attack them.

While almost any charge is susceptible to scrutiny, he added, "any fee for ending a loan" is particularly vulnerable in states that prohibit prepay fines.

Bankruptcy Fees – In what he called "another nasty area" for potential litigation, the attorney said several cases in Alabama are challenging the charging of attorney's fees incurred for the preparation of proofs of claims filed in Chapter 13 bankruptcy cases.

The issue, he said, is whether the fees are disclosed to the debtor. In two cases in which they were not, the bankruptcy judge levied rather severe financial sanctions against the lenders involved. But in another case, the judge granted summary judgement because the charges had been revealed.

"If you don't disclose," Pratte advised the lenders, "it could get ugly."

Published: June 18, 2003

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated.

He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year.

Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association.

He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972.

The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country.

He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others.

Sichelman is married, the father of five and grandfather of eleven.

Real Estate News Network