By Broderick Perkins
When California sued the state's title and escrow industry earlier this year, it was a wake up call for consumers to scrutinize the HUD-1 Settlement Statement, an accounting of most of the costs that go into buying or selling a home.
Estimating California's title and escrow industry wrongfully withheld as much as $500 million from the state's housing consumers, State Controller Kathleen Connell on May 21, 1999 filed a class-action suit on behalf of Californians who purchased homes since 1970.
The suit says, after escrows closed, title and escrow companies retained possession of unclaimed escrow funds, a violation of California's Unclaimed Property Law. The suit also says the companies charged housing consumers fees for services never rendered as well as fees supposedly for other charges, but kept the payments as company income.
California has since accounted for at least $13.6 million dollars title and escrow companies allegedly wrongfully withheld and the state says it likely will collect much more.
Virtually all of what California seeks to recover for consumers should have been itemized on federally required settlement statements.
Within three days of completing a loan application, the 1974 Real Estate Settlement Procedures Act says, among other regulations, the lender must provide you with a good faith estimate of your loan's settlement costs. The figures are estimates. Some amounts may be unknown, but all the cost items must be listed.
The object of California's court suit, title and escrow fees, come into play when the seller accepts a buyer's offer, a sales contract is ratified and the two "open escrow" with a title or escrow company.
Following instructions in the sales contract, the escrow account holder acts as a neutral third party who holds onto, and later exchanges and disburses money. The account holder also transfers and/or records documents. The escrow account holder performs those duties to pays off existing loans, to records deeds, to prorate property tax payments and interest and to complete other tasks that go with a home sale transaction.
Most of the monies associated with the home purchase, including the mortgage and its costs and the title and escrow fees, are all funneled through the escrow account.
Most of the fees in an escrow account are title and escrow related costs, including escrow account fees, title insurance, title search fees, recording fees, filing fees, transfer fees, documentation fees, notary fees, courier fees and on and on. The fees in an escrow account also include the buyer's deposit, mortgage money and its associated fees, appraisal fees, commissions and others.
The title or escrow company discloses all these "settlement costs" on the RESPA-mandated U.S. Department of Housing and Urban Development's HUD-1 Settlement Statement or a reasonable facsimile. There may be one such statement for the buyer and another for the seller.
RESPA created the settlement statement to document the fees and thereby help prevent kickbacks, referral fees and fees for services not rendered -- all illegal activities.
In addition to the initial good-faith loan costs estimate and the final settlement statement from your escrow holder on closing day, you likely will receive a settlement costs update or two during escrow.
As you proceed through escrow you should compare the original, good faith estimate and any others with the final sheet. Contact the lender as well as the escrow or title company and demand that they explain any cost differences. Ask the lender, title or escrow companies to waive any fees that were not at least listed in the good-faith estimate.
Some consumer advocates suggest demanding a receipt for each and every item on the settlement statement. Escrow experts say the settlement sheet is effectively the receipt for all the charges, so be prepared for a rejection or at least delay.
Your request could, however, at least make the title or escrow company perform a quick audit on your charges and make any necessary changes. And with the state court suit in mind, many companies also may be more inclined to oblige your request.
At least get a receipt for unexplained charges. You can then approach the entity that levied the charge to verify you got what you paid for.
Broderick Perkins, has been a consumer journalist for 20 years. Experienced in print, electronic, and consulting journalism, he is chief executive editor of San Jose, CA-based, DeadlineNews.Com, an editorial content and consulting firm.
© Copyright 1999 by Broderick Perkins. All Rights Reserved