John Wagner, one of our Klinge Realty agents, brought to our attention the lawsuit mentioned in the latest CAR update.
A few years back, a few realtors started tacking on additional garbage fees like the lenders do, calling them “transaction fees” or “document compliance fees”. They justified them by saying the additional paperwork requires more people and processing, etc.
Finally, somebody had enough of it, and sued:
A broker must perform a specific settlement service to charge a $149 “administrative brokerage commission” fee under the Real Estate Settlement Procedures Act (RESPA). That was the recent decision of a federal district court in Alabama in the case of Busby v. JRHBW Realty, Inc. (Case No. 2:04-CV-2799-VEH). This decision serves as a good reminder for REALTORS® to refrain from charging unearned fees under RESPA.
In this case, a seller in Jefferson, Alabama agreed to pay the real estate broker a five percent commission. However, during the closing and settlement, the broker also charged the buyer a $149 “administrative brokerage commission” (ABC) fee in connection with a federally-related mortgage loan.
The buyer paid the $149 ABC fee, but then sued the broker and succeeded in obtaining class action status for over 30,000 consumers. The buyer claimed that the broker performed no services for the $149 ABC fee. According to HUD, RESPA prohibits an unearned fee, such as when a “service provider charges the consumer a fee where no, nominal, or duplicative work is done.”
In response to the buyer’s claim, the broker argued that the ABC fee was for an array of services, including overhead expenses, regulatory compliance, technological enhancements, and additional commission. The court, however, agreed with the buyer. The court observed that the array of services listed by the broker were not settlement services because they did not occur at or before the closing, and any direct benefit to the buyer was negligible. The court also pointed out that, as additional commission, the $149 ABC fee would be a duplication of the percentage commission already charged.
John mentioned that he has heard of agents charging $300 to $1,000 in extra fees, and their unknowing clients having to pony up, usually right at the finish line with no notice. It is wrong, and it won’t happen at Klinge Realty.
“The buyer paid the $149 ABC fee, but then sued the broker and succeeded in obtaining class action status for over 30,000 consumers.”
That would be a big FAIL for that real estate agent! 😉
Glad to see the courts cracking down on these things.
-Erica
Wow! That’s pretty gutsy of them to pull stunts like that. As if the 5-6% wasn’t crazy enough!! If that happened to me, I’d threaten to walk right there. Which is what I did to my first home purchase, to LOWER the commission I was paying by $5K. (yeah, I know, I’m rotten, but somehow the 5-6% needs to be broken, and cut in at least half).
And realtors wonder why people hate them…
I’m glad to hear you have an ethical stand on the issue, Jim.
My last realtor was pretty blunt about hers. She told me about it before I signed the representation agreement, said it was from her corporate overlords, and it was fully disclosed. They may suck, but if fully disclosed up front then so be it.
Former RB Resident,
“She told me about it before I signed the representation agreement”
You don’t sound like a good negotiator.
This is a problem in a lot of industries. The issue is if enough people pay the fee, it doesn’t even matter if the fee is bogus. The guy in this case was lucky there was a specific rule preventing bogus fees.
How many people here actually negotiated to eliminate the “federal recovery fee” and other similar bogus fees from their landline phone contracts? And when you fly, do you get the airline to waive the fuel surcharge? The problem is even if the public got them to admit these were really intended to pad profits, all they would do is charge more nominally. That said, it doesn’t change how dishonest these fees are, particularly when they’re named to imply they are federally mandated when in fact it’s just a “pay us more fee” with no relation.
“It is wrong, and it won’t happen at Klinge Realty.” *Whew* That’s one less thing to worry about, Jim!
Thank you Jim.
My daughter and son-in-law live in the Stockton area and are looking to buy their first home. Do you know of any good realtors in that area?
I am deeply suspicious of the one they have now. They haven’t signed a contract with her.
I had a similar fee come up just prior to closing on the revised HUD. I asked my mortgage broker about it and he waived it. I’m sure many other just paid it.
Anyone willing to go through the brain damage can read the entire Busby decision here:
http://www.hwnn.com/realtysouthclassaction/files/2009-4-20%20Memorandum%20Opinion.pdf
@shdash. I had cut a discount off the 3%, so it was a fair trade.
I can’t believe they were getting a 5% commission. That’s where the real robbery is occurring. That, and they had the gall to slap a $150 fee on top of it, I’m very glad they were sued.
On my good faith est., I’m about to be dinged for
$350 for a ‘loan processing fee’ and $125 for a “tie-in” – whatever that is.
This on top of the loan origination fee of 1%.
Help, what can I do!