On a HUD1, what is the proper way to disclose third party fees? Payable to the third party (directly to the provider eg a flood determination company)or to the bank for the provider? Is either way wrong?

Any fee paid to the bank that is not retained by the bank then the party ultimately receiving the fee must be identified on the HUD Settlement Statement.

But is to shown as being paid to the bank for the 3rd party, or directly to the third party, or does thta matter?

I could be wrong but I am pretty sure it is just supposed to show who the money is going to, not the route that it took to get there. The only other distinction you have to make is if it was paid outside of closing or at closing.

If it's paid to the bank then it will be shown in the 800 series with the 3rd parties name. You may want to review Appendix A for Section L.

For all items except for those paid to and retained by the Lender, the name of the person or firm ultimately receiving the payment should be shown. . . . .

Thanks

What if the bank is paying a third party who is then paying another party for a service? And the first third party is upcharging the fee? How do we disclose that on the HUD?

For example, one of our offices orders their flood determinations through a local title company. The title company in turn orders a flood on our behalf from a flood company. The title company charges our bank $20 for a flood determination. I'm fairly certain they are not actually paying $20 for the determination - maybe $10 or $12.

On our HUD, for the flood determination should be be listing XYZ Title company for $20 or XYZ Title Company for $8 and ABC Flood Company for $12. I should point out I'm not positive they are upcharging but am fairly certain. If they are I do not know what they are being charged by the flood company nor am I certain they will share that info with me. Am I ok listing just the title company for $20 even though they are not the ultimate party receiving all of the money?

Also - all of our other offices order a flood directly from the flood company so this isn't a big issue. At this particular branch, the president didn't want to stop ordering through the title company because of the business relationship between us. He felt like we would be taking business away from them...I'm not certain I completely agree, but that's the way it is for now.

List the ultimate recipient of the fee. It is illegal to up-charge a fee (3500.14). List what the borrower is paying. If you are up-charging the fee, then you don't need to worry about Section 8 (illegal up-charging).

I know the ultimate recipient of the funds is the flood company. I am not certain if the full $20 is going to the flood company. Do I need to find this out or should I just list ABC Flood Company - $20 on the HUD?

Also, if the title company is upcharging the flood fee do I need to be concerned about that (other than why should i do business with someone who is upcharging)? It does concern me a little. However, they may very well be able to justify the added fee. I don't know.

Yes, I would prefer if this office would just order directly from the flood company like everyone else, but the argument has already been made (and compliance has stated their case), but to no avail. At this point we are at the stance of picking our battles - this is a battle we are ok losing as long as we win the war at the end of the day.

Not to add another question to your situation, but does the title company guarantee to you the accuracy of the flood determination?? You can't rely on a flood determination from a third party unless they guarantee it (and I'm guessing the actual determination company's guarantee only extends to the title company that actually pulled it - not to any third party users)

Yes - we required an indemnification from the title company for flood determinations. This was a big concern for me. I was hoping once the branch saw all of the hoops we have to jump through (separate indemnification, different fee, etc.) they would decide it's not worth the trouble...hasn't happened so far!

One of the last issues is how to document the fee on the HUD-1...all $20 to the title company, all $20 to the flood company or split out between the title company and the flood company. I don't know what they are being charged by the flood company and I'm not sure they will tell me. At this point I am going to recommend it be listed as $20 to the flood company since they are the ultimate recipient of the fee and I don't know the break-out, if any.

You need the break out. Is any portion of the fee for LOL monitoring? If so that portion is treated as a PPFC. If you don't know the break down then the full $20 would be a PPFC, if LOL monitoring is included.

PS. Not sure how your system is set up but how is this one branch allowed to deviate from the bank's procedures?

Thanks Dan. Yes part of the fee is for LOL monitoring, but again I don't know how much.

How can one branch deviate from our procedures you ask? The Branch President is adament about continuing to order flood from this title company because they are one of our customers and he thinks we would be taking business away from them if we order our floods through someone else. His argument (which I think is weak) is that we could damage our relationship with them. Nevermind that we would still continue to use their title insurance business/services. I should point out we only order floods through them when the deal involves full blown title insurance. Otherwise, they do order directly from the flood company. Again, I don't think we would be taking much business away from them - we only did 10 all of last year. Plus, oftentimes the bank absorbs the fee so we are paying for it anyhow and at a higher rate. It's at the point now where the compliance department has weighed the risks and are choosing our battles. It's not one we want to stand on the table for at this point....there are other larger battles with them which we are waging (in the BSA world).

So your suggestion is to obtain the break-out from the title company and if it's not available, count the full $20 to the flood company as a PPFC (since LOL of included and I don't know the breakout)?

Thanks for your help.

Yes.



No. You need the break down. The flood vendor is not the ultimate receiver of the $20.

If the title company will not furnish the information so you can comply with RESPA then I would be changing my business, regardless how "good" a customer they are.

BTW, if you are giving them the flood business in anticipation of any referrals or because of their business then you have a potential Sec. 8 violation. Note I said potential because I don't know the full extent of the situation, other than it's sitting on a powder keg.

Thanks Dan! This might finally be the "push" I need to convince them that we need to be consistent. Not only is it creating extra work, but there are other concerns. I don't believe there are any "kick-backs" going on. They are well aware of those and the ramifications, but it might be time for a friendly reminder.

The referring of a settlement service (flood determination) for their business is your "kick back" (thing of value) IMO.