It has long been suspected, and in some cases proven that the complexities of a typical real estate transaction afford a handy piece of wool just the right size to pull over the eyes of unsuspecting buyers who:
a) have fallen in love with the listing and aren't really paying attention;b) want to grab the property before somebody else comes along, and proves careless in the details; or
c) become so overwhelmed by the complexities and bafflegab that any sign of something untoward, or questionable is either missed, or dismissed.
And yes, those vultures are out there, assuming that you won't notice a higher fee—or you won't compare the estimated fee (for which you have already paid) with the ACTUAL fee—or you won't bother, or are too timid to ask, "is this right?"
There are various fees that go along with the purchase of real estate, and the registration of a mortgage. Usually, those fees are set amounts, or percentages. However, to speed the process along, real estate and/or title agents will often advocate speeding the process along by requesting sums for fees, the amounts of which are "estimated," and normally at a figure higher than what the actual fee is assumed to be.
This allegedly happens for two reasons: either the agent is attempting to scam you out of money, or is just lazy. It has been reported that such fees, as exact numbers, can indeed be obtained ahead of time, but the process takes a bit of time and effort. Rather, a common practice is to require funds from a buyer that will be put towards the fees, represented as an estimated amount. Once those fees are paid, the difference should go back to the buyer.
It rarely does. In fact, there are some rather elaborate schemes out there that deny you of what rightfully belongs to you.
Escrow closing fee kickback scams can actually be fairly sophisticated. One such scheme saw the creation of a corporation by real estate agents, a corporation that purchased an interest in a title insurance and escrow enterprise. Then a collection of corrupt homebuilders did the same—creating a similar corporation, and purchasing a partial interest in an escrow company.
The next step, of course, was to refer home buyers to their own title companies which, in turn, returned a portion of the title and settlement fees to the corrupt realtors and builders.
Then, of course, there is the simple inflation of fees—an occurrence that results in hundreds of complaints every year to the Department of Housing and Urban Development (HUD).
There are various ways of hoodwinking you. One such scheme is the withholding of the HUD-1 settlement sheet, which is supposed to be passed onto you prior to closing. Some agents will present the document at closing, providing you with little opportunity to study it. Others will not even provide the sheet at all.
Some mortgage brokers have been known to underestimate settlement costs, just to get you in the door—only to up the fees once they have you in their grasp.
Title fees and kickbacks to lenders is considered the most popular form of fraud, costing you precious dollars you may not have to spend. What happens here is that only a small portion of the fee you pay is used to actually support the premium on the policy, which is usually underwritten by a large, national organization. The bulk of your 'premium' fee goes to the local title insurance company, to pay for overhead and so on. And some of that fee is often returned to realtors or lenders, in return for a referral.
But there are still other scams that could hook you. For example, did you know that lenders are not allowed to take a profit for such things as appraisals, or credit reports? Extra services might justify an added fee, depending on what those services are—but they would have to be outside the norm. For normal services inherent with those noted above, there would in normal circumstances be no fee for that. If there is, question it. You might have been taken to the cleaners.
The money that you might wind up out-of-pocket may not be all that much, and perhaps not worth pursuing.
Perhaps. But when one considers the number of scams out there…well…just consider how much the scammers are making if they multiply you by, say, 1000 or 10,000 or 100,000. Suddenly it's a much bigger deal.
If you're in the throes of a real estate transaction right now, there are some things you can do to keep the wool off your eyes. Insist on seeing the HUD-1 disclosure form well in advance of closing. If you don't have it, make some noise. Find out why. Too few people just roll over and don't even bother to ask.
Demand to see a schedule of the fees. It is available, and is not an unreasonable request. And if you are providing funds for fee estimates only, make sure you see a list of actual fees paid before you sign on the dotted line.
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And make sure if you have any question about anything, ASK! If a lender, broker or agent seems taken aback or displeased, it's only because so few people bother to ask questions. It is your right, and you could be saving yourself some money.It is true that most agents, lenders and brokers are reputable and honest—and are happy to do business with anyone curious enough to know the facts. However, there are some purveyors of dishonesty out there, robbing you of precious dollars and giving everybody in the industry a bad name.
Don't let the buggers get away with it. If you've been scammed, or you think you have, talk to a Real Estate Overcharges lawyer. They'll keep doing it, until somebody stops them.
And besides—with the taxes you'll be paying in Manhattan—you could use the extra coin…
