Posting for

Thursday, October 26, 2000

by: Bert Rush

brush@firstam.com

PAYOFF DEMAND FEES/ESCROW AND CLOSING/MORTGAGE LENDERS

A major mortgage lender has begun to charge escrow and closing agents for providing its "written payoff demand service." The one-time (per demand) charge is $60. The lender wishes to make clear this

charge is the closing agent's responsibility, NOT the borrower's. What should we do about this?

Jim Dondero (Grand Rapids, MI) has forwarded a copy of a "Payoff Demand Statement" received from Countrywide Home Loans in connection with a pending transaction. To view the Statement, click on the URL below. Pertinent language is indicated by arrows.

As said by the Statement, the lender "provides free payoff information" through a toll-free telephone number. But if you want a written payoff demand, which has the advantage of being automatically updated through expiration of the demand period, you have to pay the freight.

It is, of course, regrettable that there has to be a fee for written payoff information. Written demands are advantageous to all concerned, since they help prevent disputes and misunderstandings between closing agents and lenders.

But here it is, and it's said to be "Due From Closing Agent," so what should we be doing about it?

First, seems to me we should be careful not to pass this along as something for which the customer (i.e., borrower, seller, or buyer) is charged without the customer's informed consent. Some operations may wish to make the written payoff demand a requirement, from a title underwriting standpoint.

If this charge is to be passed along, other questions may arise. For example, how should the charge be shown on the HUD-1 settlement statement? If it's shown in the Line 800 or Line 900 series, the new lender may object. If it's shown under Lines 1111-1113, might we still run afoul of some regulation or guideline? Might this have ramifications for RESPA's good faith estimate requirements??

Second, some operations may decide to forego the written payoff demand service and instead use the automated telephone system. We've dealt with automated telephone systems for payoff info for some time (indeed, some lenders don't give us a choice), and my impression is that our claims experience has not been too adversely affected. The trick is to make sure that both you and the disembodied voice on the other end are talking about the same borrower, the correct loan number, and that the lender understands they are to send a release of the paid-off mortgage by return mail.

The hazards of performing payoffs have been discussed ad nauseum in our meetings over the years. When relying on verbal payoff info, the recommended practices are:

(1) the escrow/closing officer should make a written note for

his/her file of the date, time, and specifics of verbal payoff

information provided;

(2) the closing officer should re-check (update) verbal payoff

information at (or just before) the closing;

(3) the closing officer should send a written cover letter with

the payoff check (or, contemporaneously with a wire transfer)

saying that the lender is being tendered the payment (amount and

check/wire transfer number) in full satisfaction of the loan

(number) secured by a mortgage against real property located at

(address) with the understanding and on the condition that the

lender will provide a release/reconveyance of the mortgage, in

recordable form, by return mail; and

(4) if the release/reconveyance is not forthcoming, the closing

officer should make follow-up contacts with the lender, and keep

a written record of contacts made and what was said.

This may also be a good time to re-consider use of a stamped endorsement on the back of each payoff check ("THE NEGOTIATION OF THIS DRAFT BY THE PAYEE CONSTITUTES THE FULL SATISFACTION OF A MORTGAGE RECORDED AS DOC. [number]"), as discussed in our posting for 1/26/99, "Indiana Claim."

Third, Bob Duffin (Warrenville, IL) reports that in his region requests for payoff information are routinely made by the borrower, or an attorney or realtor representing the borrower, with the result that our branches and agents are being presented with this Statement and the $60 fee without having "elected to purchase" the written payoff demand service." In that case, and where the branch or agent does not intend to pay the fee, I think the closing officer should promptly return the Statement to the lender with a note saying that the Statement has been given to the Closing Agent by a third party, it was not ordered by the "Closing Agent," and it will not needed (or used) for the closing. Real estate attorneys and brokers should be educated about this, as best and as soon as we can.

Messrs. Dondero, Duffin and Gerard Knorr (Troy/Michigan) would be most interested to hear from others of you on this.

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Following last Thursday's posting, Frank Melchior (Iselin, NJ) writes:

While I'm formulating (in my alleged and feeble mind) what the ultimate response - especially to our NJ agents - should be, an immediate question comes to mind. Isn't Countrywide CA based? Has anyone attempted to reason with them? In this day of automation, a fully automated reply in writing, whether fax or e-mail, should be feasible and available at a reasonable cost which, in any event, should be the borrower's expense.

Aside from the totally outrageous charge, it bothers me to have the lender tell us who has to pay (or not pay) the charges reasonably incurred in satisfying the lien they hold.

Comment by Bert Rush: I believe no one has attempted to talk Countrywide out of this. Instead, I hear from Bob Duffin (Warrenville/Chicago) that another major lender may also be imposing this charge. As for the reasonableness of the amount, read on.

Dick Lamb (Fresno, CA) writes:

In California Section 2943 of the Civil Code provides that a beneficiary may a charge not to exceed sixty dollars for furnishing each required statement (payoff demand statement or beneficiary statement), however, such provisions shall not apply to mortgages or deeds of trust insured by Federal Housing Administrator or guaranteedby the Administrator of Veterans Affairs. There is nothing in the statute which limits the ability of an "escrow holder," as an agent of the trustor/mortgagor and an entitled person to pass the charge onto the trustor/mortgagor. Therefore, it would seem that the practice of having the trustor/mortgagor approve the payoff demand statement and authorize the payment of such fee (chargeable to the trustor/mortgagor) prior to close of escrow would alleviate the problem.

Jim DeCourcey (Agent/southern OR) writes:

I accept the idea that a lender can indicate that a charge is the responsibility of the closing agent. If that is the case, there are several additional questions. Reading the statement suggests that the lenders' lawyers may be trying to make it clear that this is not some hidden charge that was not disclosed when the loan was implemented which would constitute a violation of truth in lending laws. Consistent with that statement, the lender would be required to accept a payoff even if the charge were not paid.

First, can you pass that charge on to the appropriate party in an escrow closing? There would appear to be no reason that such a charge should be swallowed by the closer. In the same way that long-distance charges, express mail fees, local government search fees, and the like are passed on, such a charge can be passed on as well.

Secondly, do you have to pay the charge? What is Countrywide going to do if you don't, file a small claim?

William Homa (Pittsburgh, PA) writes:

Without looking at RESPA, I would think that this fee is not permitted under RESPA. What do all others think?

Reply by Bert Rush: I don't see anything in RESPA that seems to apply. The prohibition against kickbacks doesn't apply because this fee has nothing to do with referral of business. On the other hand, it's arguably defensible as being for services actually performed.

Mike Fromhold (Valley Forge/Philadelphia) writes:

All we need is a one time $60 charge for wire funds or certified check and state that the payment of same is not a condition to acceptance/negotiation.

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Following last Thursday's posting, Bob Duffin (Warrenville/Chicago) writes:

In Illinois, the lender, in the case of a refinance, or the seller's attorney, in the case of a buy/sell, present the payoff letters to the Company. In very rare instances, a closer might request a payoff. This presents us with a different problem since the letter indicates the closing agent and not the borrower is to pay the fee. We are ignoring this charge on the letter since we are not ordering the payoffs. On the other hand, I can see a major lender amassing a record of these charges based upon the Title Company who issues the payoff check and knocking on the door of our home office with a threat of pay or else. In light of past issues of this type I would think that this is a situation that should be addressed proactively by home office before the three thousand pound gorilla "comes a knockin".

Jim Dondero (Grand Rapids, MI) writes:

Having carefully crafted this provision to avoid liability, it is unlikely that this huge national lender (and others) would delete or modify it in order to relieve the dilemma it creates for settlement agents! And, we might be foolish to simply trust the statement that "payment of this fee is NOT a condition of the release or reconveyance". So, while remaining open to other suggestions, the only practical solution I can see is to collect the fee and require some kind of release or "hold harmless" from the borrower (although I certainly enjoyed Mike Fromhold's suggestion that we offset it by charging our OWN fee of $60 for certified payoff funds!).

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Following up on last Thursday's posting, and replies, Gerard Knorr (Troy/Detroit) writes:

After much consideration I have concluded that a closing agent will not be responsible for the payoff statement fee unless the closing agent submitted the demand. The notice to closing agent in the demand conditions the fee on the assumption stated in the notice that the demand for payoff was made by the closing agent. If, as is the case in this region, the demand is sent over the signature of the borrower or the borrowers agent the lender's notice is not demanding payment of the fee by the closing agent. I will be advising the offices and the agents in the Midwest region that they need not pay the fee unless they submitted the demand. I will also suggest to our agents and offices that a statement be included in its payoff cover letter or memo that the payoff demand was not issued by closing agent and the payoff statement presented at closing was issued pursuant to a payoff demand issued to lender by the borrower or a agent of the borrower.

The three thousand pound gorilla may show up about the fees he would like us to pay but he can show up anytime on just about any issue he thinks the title company should take care off, provide or pay for. If we are concerned about keeping the gorilla away then why not just start paying a fee to all the lenders as a closer's written payoff statement fee.

I would not advise adding the fee to the closing statement and charging the borrower. Class action lawsuits brought under state unfair trade practice law are very expensive to defend and the payment of treble damages is also in the wings. The fee is stated on the payoff statement as a fee due from the closing agent not the borrower. do agree with Bob Duffin's suggestion that we make a preemptive strike by calling on the lender and explaining that the closing agent in many cases is closing based upon the payoff statement provided but was not involved in the sending of a demand for payoff.

I had considered just increasing the closing fees to close loans where a payoff statement fee is required. Doing so would be non-competitive. How do you tell a customer, if the lender is in table A, the closing price is X but the fee is Y if the lender is in table B. If the lender is serious about reducing the number of written payoff statements it issues, it may be sending notices to borrowers suggesting that they have closing agents obtain payoff information directly from the lender.

I suspect that when everything shakes out we will be placed in the position of closing on payoff information obtained by calling the lender's toll free number. This provides another opportunity for errors by both our employees and agents or the lender that will keep our claims counsels out of the lines at the food kitchen.