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.


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