Did You Pay a “Doc Fee” on Your Mortgage?

24 Aug Did You Pay a “Doc Fee” on Your Mortgage?

Missouri mortgage lenders that charged a “document preparation” fee were breaking the law. Many have already settled and others may now face paying triple damages in class actions at a time when many are already facing pressure from the current credit market meltdown.

The case involved a mortgage company charging its borrower a “doc prep” fee to prepare deeds of trust, promissory notes and other loan paperwork. The documents were mostly for the lender, so it could re-sell the loan in the secondary market. In a sense the documents benefited the borrower since the lender would be less likely to lend otherwise. But more directly they were for the bank’s benefit so they could unload the account quickly.

The Missouri Supreme Court, en banc, held this week that the mortgage lender’s employees, although not lawyers, were practicing law when preparing the documents and were charging the other party for the service. Missouri has a statute which makes someone liable for triple any fee paid for the unauthorized practice. It’s also a misdemeanor.

The lender argued that the borrowers voluntarily paid the fee so they should not then be able to sue (even in a class action). The court rejected this argument and concluded that a victim of unauthorized practice of law should not be required to recognize the situations which may be a legal practice and then object to it in order to protect themselves.

Some folks will no doubt claim this is the “plaintiff’s bar” run amok once again, chasing businesses with class actions over nickel-n-dime claims. But anyone who has been through mortgage closings knows the nickels and dimes add up to some handsome fees for the mortgage originator.

As a consumer advocate, it has always been annoying to see these lenders make enough in fees in a few days financing a home to match the fees I may earn representing those same folks over several years trying to save that home. And the “doc fee” is particularly galling: The borrower doesn’t really care if the loan is resold — they often prefer the lender keep it actually — yet they still have to pay for the paperwork the bank needs to sell the loan off. And, worse, this legal service is being provided by employees of the lender. In other words, it was and is just another way to break the price down into little tiny pieces so customers don’t realize how big the overall charge really is.

Unfortunately, with the on-going credit meltdown driving many of these lenders into bankruptcy themselves, many consumers who were victims of such illegal charges will have an unfamiliar role — creditor.

Car dealers and auto finance lenders often charge a “doc fee” too. Only time will tell if this passes muster or not.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website: STLBankruptcy.com
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