Appraisal Fee Collected Before Loan Estimate
On Friday, March 7, Priya submits a complete residential mortgage application to North Shore Lending for a $380,000 purchase loan on a condo in Somerville. The loan originator, Marcus, tells her the appraisal fee is $650 and asks her to pay it by debit card on Saturday, March 8, so the appraisal can be ordered “first thing Monday.” Marcus delivers the Loan Estimate on Tuesday, March 11, because he was waiting for the condominium association questionnaire. The LE lists the appraisal fee at $650. Priya pays the fee on Saturday. The loan closes April 30. The appraisal comes in at $390,000, and the seller refuses to reduce the price. Marcus re-discloses a revised LE on April 2 with a $700 appraisal fee and a 0.25-point origination fee increase due to a “changed circumstance.”
1. Identify the RESPA/TILA violations in Marcus’s handling of the Loan Estimate and fees.
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The application was received Friday, March 7. For LE delivery, the three-business-day clock generally runs Monday through Wednesday, so delivery on Tuesday, March 11, is likely timely. The fee collection is not. Under 12 CFR 1026.19(e)(2)(i), the lender may not collect fees before the consumer receives the LE except in narrow circumstances not shown here. Marcus collected the $650 appraisal fee on Saturday, March 8, before the LE was delivered. The condo questionnaire delay does not excuse early fee collection; he should have delivered the LE first or used a permitted exception. The revised LE is also suspect. A changed circumstance must be a specific, unforeseen event affecting the borrower’s eligibility or the settlement charges, and it must be documented. A lower appraisal does not justify raising the appraisal fee from $650 to $700 or the origination fee by 0.25 point ($950 on a $380,000 loan). The origination fee is a zero-tolerance charge; absent a valid changed circumstance, it cannot be increased. The $50 appraisal increase may be within the 10% cumulative tolerance if no other tolerance problems exist, but that does not validate the origination fee increase.
2. What should the lender do to cure the problems and what records are needed?
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The lender should immediately review the file and, at closing, refund any zero-tolerance overcharge-here the $950 origination fee increase-and correct any tolerance violation within the required cure period, generally within 60 days of consummation. If the $650 fee was collected before the LE, the lender should document the exception analysis; if no exception applies, it should treat the early collection as a compliance violation, notify compliance, and consider refunding the fee or otherwise remediating. A revised LE should be issued only if there is a valid changed circumstance, within three business days of receiving the information, and it must be retained. The file should include the application date, LE delivery evidence, fee authorization, the condo questionnaire timeline, the appraisal, the changed-circumstance documentation, and the refund calculation. Marcus should be retrained on the LE timing and fee rules.