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19 April 2004, Postscript 18 June
2004
"At our closing last year, I was shocked
to find that the title insurance cost was $800 higher than the estimate shown on
a revised Good Faith Estimate (GFE) we had received several days before the
closing. At the closing, held at the title company, I asked the title company representative what had changed in the two days that would cause such an
increase. He said that nothing had changed, that the title company had faxed the
correct figure to my lender several weeks before the date of the GFE, and he
gave me a copy of the fax. The lender had simply disregarded the fax. I
understand that the GFE shows estimates, but isn�t the lender obligated to
provide the best estimates possible? Is there a regulatory agency to which I can
complain�?"
If the lender had an accurate figure from the
service provider and didn't use it, clearly the estimate was not made in good
faith.
Why do some lenders do this? They know that
many borrowers look at settlement cost estimates in shopping lenders, so they
want to make their figures as low as possible. Furthermore, they can almost
always get away with it is very difficult to prove that an estimate was given in
bad faith.
You have them dead to rights, however,
because you can prove that the lender had the correct information in time to
give it to you. Given that your decision to go ahead with this lender was
influenced by the erroneous estimate, you should prevail if you take the lender
to small claims court.
You should also register a complaint to the
HUD Office of Consumer and Regulatory Affairs, US Department of Housing and
Urban Development, 451 7th Street, SW, Washington, D.C. 20410. In addition, you
should file a complaint with the government agency that regulates the lender.
Here are web sites you can use to contact these agencies: For national banks,
http://www.occ.treas.gov/customer.htm.
For Federally chartered savings and loan
associations, http://www.ots.treas.gov/contact.html
For state-chartered banks and savings and
loans, http://www.lendingprofessional.com/licensing.html
For mortgage banking firms, http://www.aarmr.org/lists/members-IE.html
In most cases, borrowers given an erroneous
estimate have no recourse because there is no evidence of bad faith. This is one
of the abuses HUD hoped to eliminate in its proposed package of reforms of the
Real Estate Settlement Procedures Act (RESPA), which is the Federal law that
governs the GFE. Because of the intense political pressure against it, however,
HUD recently withdrew the proposal and there is no prospect that it will be
enacted in the near future.
So borrowers have to take care of themselves,
which is not easy. To my knowledge, there is only one lender that guarantees its
settlement costs in advance: ABN AMRO, accessible on www.mortgage.com. I�ll
have some other suggestions for avoiding larceny at the closing tables in
another column.
June 18, 2004 Postscript: I received a
comment from a lender pointing out to me that lenders are not obliged under the
law to send another Good Faith Estimate from the one required at the start of
the process unless the lender's own fees change. If third party fees change,
there is no obligation to correct the GFE, though many lenders will.
Since the GFE with the understated title
charge was a revision of an earlier one, presumably the lender was adjusting his
own charges. Would a court hold that in correcting his own charges, the lender
is not also obliged to correct the third party charge if he knows at the time
that the charge is off the mark by a large amount? I am not a lawyer, but it
appears to me that these facts suggest that the original estimate was not given
in good faith.
Copyright Jack Guttentag 2004
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