I know there are other posts here on this subject – I believe I’ve read them all. But . . . sometimes things still do not click. So, I’m hoping someone will say the right thing to make my light bulb come on.

Our bank uses an employee to satisfy mortgages on payoff by the customer. Management charges a mortgage satisfaction (lien release) fee to the borrower. The fee covers the cost of the recording paid to the recorder’s office and an additional amount that is supposed to cover the bank’s costs for administration expense. This administration expense has not been calculated. Management is contemplating using a law firm to handle the mortgages satisfactions. The mortgage allows the bank to charge a fee but the loan department has not disclosed the fee in an itemized list.

I have read HUD’s Reg X and Reg. Z, reviewed a couple of resource manuals and performed extensive keyword searches on this site. Back in 2000, I had differing opinions from two national compliance experts on the GFE issue. Based on my review, it seems to me that there is some confusion over how to treat mortgage satisfaction (lien release) fees for RESPA and Reg. Z purposes when these fees are collected well after loan settlement.

Question 1 - Is a fee collected in the future for satisfying a mortgage at loan payoff considered to be a finance charge and/or a fee to be disclosed under Reg. Z, and is such a fee considered a settlement fee for disclosing in the GFE for RESPA.

My answer 1 - Reg. Z 226.4(e)(1) exempts fees required by law and paid to a government official if itemized and disclosed. Therefore, any recording fee that our bank charges the customer would not be including in the finance charge as long as it is the exact recorder’s fee and we disclose the recorder’s fee. Any amount charged to the customer above the recorder’s fee, say as to a law firm, to handle the satisfaction, would not be excludable under 226.4 Commentary (e)(1)(ii). That amount would have to be included in the finance charge.

RESPA – The definition of settlement in 3500.2 the GFE requirement in 3500.7(a) appear to exclude charges that are not related to the settlement of the loan. Therefore, a fee collected at loan payoff would not need to be disclosed under RESPA.

Question 2- How do you disclose a future fee?

My answer: - Rather than use the fee as of today, estimate based on payoff at term.

Am I thinking correctly on this issue? Do most banks collect this fee up front at settlement?

Okayyyy. Is this too much for someone to chew or did I forget to brush my teeth?

See the answers to the Massachusetts Bankers Assn. attached to FDIC FIL 2000-45 here . If the fee must be paid as a condition of settlement, it is reflected on the HUD-1.

As far as whether it is a finance charge, do you know whether the fee will be charged or not? If you do not know, is the impostion of a release fee a subsequent event that is not disclosed under TILA?

Finally, be careful of states that consider document preparation, or the payment of a fee for document preparation, to be the practice of law.

Thanks for responding Howard.

Our mortgage states that we must satisfy the mortgage at the courthouse upon loan payoff. We know the courthouse charges a fee. An additional fee for administration would be charged by a third party attorney to perform the satisfaction. These fees are charged at the time the loan pays off, not at or before consummation. Because of this, I do not believe we could treat this as a subsequent event. And, if I'm right, this fee paid by the borrower, should be included in the finance charge calculation.

After further reading 226.17(c), it seems that we could disclose this type of fee as an estimate.

As for RESPA, I have read the Mass Bankers response. With the exception of one Q&A on construction inspection fees, I do not believe it addresses subsequent charges. And, even in that one Q&A, it seems to be dealing with charges that were most likely known at settlement.

However, I will go back and re-read this doc. I feel a glimmer of light going off in my bulb in relation to the requirement for our bank to satisfy the mortgage. I suppose this would be a condition for making the loan.

We do not have this problem in Michigan - State law requires the lender to discharge a mortgage at the lender's cost.