Mortgage Payoff Fees Raise Questions
Newsday tells the story of a couple who didn’t think twice when they got a payoff notice for their home mortgage that included more than $200 in fees in addition to their final payment in 2002.
The letter from Astoria Federal Savings listed an attorney document preparation fee of $125, a fax fee of $25 and a recording fee of $64.
They paid the fees. But two years after that, the Belle Terre, Long Island couple and several other customers charged in a lawsuit that the mortgage contract, as well as federal and state law, prohibit the fees.
The suit claims that the home mortgage fees should have been disclosed as part of the finance charge and that they exceeded the reasonable value of the services provided.
U.S. District Court for the Eastern District of New York in Central Islip certified the suit as a class action in September.
The amount of money varies for each mortgage borrower, but involves at least a few hundred dollars in each case.
“Obviously, you start to look at that from the perspective of the class-action suit when there are thousands of people that have all paid this,” David McAnaney, the plaintiff, said.
The law firm has filed a similar suit against Washington Mutual, with three of the four plaintiffs from Long Island.
Tim McGarry, spokesman for Washington Mutual, said the bank “intends to defend itself vigorously in this matter” but wouldn’t comment further.
Similar cases filed elsewhere have had mixed results.
The class in the Astoria Federal case comprises current or former customers who obtained residential mortgage loan products carrying fees deemed in violation of the contract or the law. The class action could involve tens of thousands of current and former customers.
Astoria Federal gets millions of dollars in fees for loan servicing: $5 million in 2005, down from $5.8 million in 2004, according to filings with the SEC. An Astoria Federal spokeswoman said the mortgage company doesn’t comment on pending litigation.
Fees assessed when residential loans are paid off, including unauthorized charges, aren’t new, but class actions have helped make the practice less common. Some banks will say they offer a no cost mortgage but include hidden charges.
“When they say they’re not going to charge you a fee, they don’t charge you that fee - but they call it something else,” said Michele Raphael, partner at Wolf Popper.
That’s what Joseph Policano of East Hampton claims happened to him. The retired executive said he insisted on a home equity loan without a prepayment penalty at Suffolk County National Bank in 2002, and the bank granted him one.
But a year later, when he went to refinance his home equity loan, the payoff letter included a substantial fee.
“They said, ‘This is not a prepayment penalty. It is a recovery of costs,’” Policano said. “I really thought it was like a swindle.”
Because of the fee, he decided not to move forward with the mortgage refinance. The result: He was stuck with higher interest payments.
Douglas Ian Shaw, senior vice president of the bank, said explicitly the fee was not a prepayment penalty.
“What he had was fees waived up front on the condition that he carried the loan over a period of time,” Shaw said.
A prepayment penalty typically applies to installment loans but very rarely to mortgage loans and is charged if a loan is paid before maturity.
The bottom line:
When you obtain a loan, ask about payoff fees. Read the contract closely.
Be aware that a loan or home equity line of credit touting “no prepayment penalties” may have other fees to recover closing costs if the account isn’t held for a certain period of time specified in the contract.
Ask about fees again before you plan to pay off a mortgage or home equity loan or line of credit.
If you think you’re being charged an unwarranted fee, ask the bank to explain. Press for details, such as the section of the contract that specifies the fee. Ask if there is any way to avoid the fee, such as processing some paperwork yourself. If the bank’s explanation isn’t satisfactory, consult a lawyer.