But first, LawyersandSettlements asked Mr. Perkins to define an Escrow Agent and the HUD-1.
HUD-1 Settlement Statement
When you "close" on the purchase or refinancing of a home, your Escrow Agent (also referred to as a Closing Agent and Settlement Agent) will typically use a HUD-1 Settlement Statement for the transaction. (When real estate transactions involve the use of federally insured funds, the use of the HUD-1 or HUD-1A-- in the case of a residential re-financing transaction-- is mandated. However, even in those transactions which do not utilize federally insured funds, the HUD-1 form is utilized.)
The Settlement Statement sets forth all of the credits, costs, and charges associated with the transaction. The Settlement Statement provided at closing is required to list the actual charges associated with the transaction, and the Escrow Agent has a duty to make sure the costs are accurate.
The Escrow Agent, typically a representative of the Title Insurance Company, is involved in a residential real estate sale and/or refinancing from the beginning to the end of the transaction. The Escrow Agent collects all of the necessary documents and information associated with the transaction, and makes sure all of the necessary documents are filed with the county in which the real estate is located. It is critical to all of the parties to the transaction, as well as the financial institutions that are involved in the transaction, that the information provided by the Escrow Agent is accurate.
LawyersandSettlements (LAS) Exactly how are consumers getting ripped off?
Bob Perkins: They are being overcharged for recording fees by the escrow agent. The agent is inserting incorrect information in the final HUD one settlement statement.
Take a look at section 1200, line 1201 on page two of the HUB-1 settlement statement:
1200. Government Recording and Transfer Charges: These fees may be paid by you or by the seller, depending upon your agreement of sale with the seller. The buyer usually pays the fees for legally recording the new deed and mortgage (line 1201).
1200. GOVERNMENT RECORDING AND TRANSFER CHARGES
1201. Recording fees: Deed $ ; Mortgage $ ; Releases $
Many of the line item amounts reported by the Escrow Agent on the HUD-1 form are simply inaccurate.
We have found that a high percentage of transactions, sometimes as high as 70 percent, are reported as overcharges on the HUD-1. In other words, individuals have been overcharged for their recording fees and the overcharges are not refunded.
LAS: Who are keeping these funds; who are you filing a class action against?
Bob Perkins: For the most part, it is the major title insurance companies who, acting as the escrow agent in transactions they insure, keep the extra money from the HUD-1 line item overcharges.
Right now we have existing cases against several major Title Insurance companies. We are also investigating class action cases against the rest of the major Title Insurance companies. The truth is that several groups of companies control the majority of the Title Insurance market, and these same companies provide Escrow services for the transactions they insure.
LAS: Has there been an increase in these overcharges?
Bob Perkins: I believe so. The number of transactions increased dramatically during the recent real estate boom years, particularly because of the sub-prime market. As a result there are a lot of funds that should have been returned. If you have either refinanced or purchased a home, it is likely that you have been a victim of these overcharges.
LAS: How much money in recording fees is being overcharged?
Bob Perkins: Although some of the overcharges are in the $5 per transaction range, some overcharges exceed $100 per transaction. The companies that are overcharging are well aware of what they are doing, yet they still keep the money without notifying the client.
LAS: Why would someone be dishonest for a few dollars?
Bob Perkins: First, you need to look at the bigger picture. Millions of transactions take place yearly. If you overcharge $5 to $100 per transaction, that adds up to a substantial amount of money. The companies try to justify it by stating it is easier to guess-timate the charges because it is virtually impossible to know the exact charges.
LAS: Which is not the case.
Bob Perkins: It is possible to determine the exact amount easily so their excuse is invalid.
The companies simply choose not to determine the exact amount or intentionally overcharge as it means extra money for them. It is negligence and/or intentional conduct in overcharging on their part. In either scenario, they are libel. No matter what the reason, the agents are duty-bound to report and accept as payment an accurate dollar amount in every transaction.
LAS: How can they get away with it?
Bob Perkins: They count on you not reading between the lines. Most people spend half an hour going through a transaction they have already spent several weeks and even months preparing for. The amounts listed in the final HUD-1 are not provided to them until 24 hours before the actual closing. Even then, most consumers don't look at the charges until the closing itself, and then only in passing--most closings are conducted quickly. And the parties rely on the Escrow Agent to tell the truth by providing accurate numbers in the HUD-1.
Some Escrow agents get consumers to agree the recording fees are 'just estimates". By telling the client these figures may not be right, they in turn claim they are off the hook as the consumer understood and took the risk. Again, the escrow agent keeps the overcharged amount.
LAS: How many consumers are involved and who should be compensated?
Bob Perkins: Nationwide, hundreds of thousands of people every year have been overcharged. If you do the math it adds up to millions of dollars in overcharges that need to be paid back to every consumer that had a transaction.
LAS: What can the consumer do to avoid overpayment?
Bob Perkins is Of Counsel to Rose & Rose, P.C., a Washington D.C. based class action boutique. Mr. Perkins, has a degree in Real Estate Finance (University of Illinois, BS, Honors, 79'), and acted as counsel in numerous complex real estate based cases.
LAS: If you or someone you know has been a victim of overcharges, we recommend that you seek legal help. Contact Bob Perkins and provide Rose & Rose, P.C. with your HUD-1 and/or Closing Statement. They in turn will be able to determine if you have been a victim.