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Fidelity National Title and JP Morgan Steal Buyer’s Attorney’s Fee with Petty RESPA Disagreement

I recently was involved in a closing where JP Morgan Chase and Fidelity National Title ended up “stealing” my attorney fees by not allowing them on the HUD.  How many times has this happened under all sorts of pretenses:  You didn’t request your fees be added to the HUD in writing;  The lender didn’t list you as receiving any attorney fees;  Your fees don’t match the good faith estimate. 

HERE’S THE BOTTOM LINE:  If buyer’s attorneys cannot be paid pursuant to their written fee agreement with their client in a secured way through the HUD, then something is going to have to change.

Specifically, what happened in this case is the following.  Buyer’s had a total fee of $450.  This fee was increased due to a cancellation of a schedule closing less than 48 hours prior to the closing date.  All of these terms were in the written fee agreement which the clients signed.  Under our fee agreements, clients must pay 1/2 of the fee up front which the client’s did.  Therefore at closing, $225 of the regular rate and $225 additional for the abruptly cancelled closing resulted in $450 due at closing.

The $450 was requested to be added to the HUD and Fidelity placed it in line 1307.  Unfortunately, JP Morgan Chase objected and said that the fee should be placed in line 1100 section.  Fidelity’s software supposedly doesn’t allow this.  JP Morgan Chase alleges that this is what the RESPA law requires, but Fidelity doesn’t allow this.

To settle the matter, I ended up slashing my fees by 50% for a payment by check at the closing from the client.  What is most sinister about this is that the client had more than $1000 that they had to forfeit in seller paid credit for closing costs because they could not get money back at closing.  My total fee could have been paid out of this had JP Morgan Chase not objected or Fidelity had their software updated to comply with JP Morgan Chase’s view the RESPA law.

SOLUTION:  All clients should pay 100% of the estimated flat fee to the buyer’s attorney up front and deposit into the client trust account.  Upon the failure of the closing, the buyer’s attorney could specify in their fee agreement that 1/2 of the estimated flat fee be paid from retainer and 1/2 returned.  Upon successful completion of the closing, all fees wold be paid from the retainer.  Any special charges such as trip charges, cancelled closing fees and other miscellaneous charges could be either invoiced to the client outside of the HUD or invoice and paid via the HUD at closing …..subject to lender and title company approval.  Bottom line – most of the time all of the fee would be paid.

The other option is for real estate attorneys to either take these closings on a loss leaders or simply exit the representation of buyers.

Attached is a model representation agreement for review.

To download a copy of our proposed Illinois Buyers Residential Real Estate Client Representation Form, please click Download CRA.

Unreleased Mortgages – The Hidden Nemesis

Unreleased Mortgages – The Hidden Nemesis

I recently ran into a very surprising situation involving a real estate transaction that should have been simple.  The client was selling a residential property.  It was a single family home with a simple single mortgage.  Ordinarily, you can pull a title search, prepare the commitment and close within two weeks of opening the file.  However, this title search revealed an unreleased mortgage from 20 years prior to the search.

The issue is that normally none of the succeeding transactions would ever occur without the mortgage being released, but sometimes mortgage companies would not record the release because they would send it to a customer and make them record it which the customer oftentimes would not do because the sale had already occurred with proof of payment being in the HUD-1 at closing.

The result:  A perfect closing with perfect title, except it isn’t on public record.  Only with the title commitment can you fully know that the mortgage has actually been paid off, released, but the release hasn’t been recorded.

The solution:  Get a copy of a prior title policy showing the mortgage as cleared.  So what do you do if the title policy is not accessible.  Bottom line – forensic title work.  Usually you are looking for any indications of a title company or title insurer on successive mortgages that come later in time.  Then you call them, ask for a copy of title and work backwards.

The moral of the story:  Even if everything should  be on public record, you should:

Keep a copy of your HUD-1
Keep a copy of your title policy
Keep a copy of your recorded deed
Store them in your safety deposit box

TODAY the story is different.  When you close today, the title company collects $48 for each mortgage so that the release is guaranteed to be recorded.  This law was enacted in the later days of the housing boom as unrecorded mortgage releases became rampant.

Bottom line: Be prepared, when you sell your house, you may have an unrecorded release of mortgage to deal with.  Good luck and clear titles to you.

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