Attorney Edward Schiff: Mortgage lender charges may be illegal

Real Estate Weekly, Sept 18, 2002 by Edward L. Schiff

In August of 1997, Elsie Negrin, in preparation for selling her condominium apartment, asked her lender, Norwest Mortgage, Inc., for a payoff letter to ascertain the exact amount necessary to satisfy its mortgage. Norwest faxed the payoff statement, indicating the outstanding principal mortgage amount and the per diem interest rate. The letter also included a "recording fee" of $13.50 and a "fax fee" of $10.

Two weeks after the closing, Negrin commenced a class action against the bank, claiming that Norwest improperly imposed thousands of dollars of similar fees on its mortgagors when they sought to satisfy their loans with the bank. Specifically, she charged that the $10 fax fee and the $13.50 recording fee were illegal, as they were in violation of Real Property Law [section]274-a. This law provides that upon written demand from a borrower sent by certified or registered mail, stating that the borrower is satisfying the mortgage and requires information as to the balance due, the mortgage lender must such information within 20 days. The statute goes on to state that the mortgage lender shall not charge for such information. Judge Edward W. McCarty, of the Supreme Court of Nassau County, heard this case and dismissed Negrin's complaint. Negrin then appealed to the Appellate Division, Second Department.

The Appellate Division, in a 4-1 decision reversed the decision of Judge McCarty and held in favor of Negrin. (Elsie M.Negrin v. Norwest Mortgage Inc. 700 N.Y.S.2d 184).

The Court noted that the Governor's bill jacket, which accompanied the enactment of this statute, clearly demonstrates that the law was passed to encourage mortgage lenders to provide timely satisfactions of mortgages to help avoid a backlog of unrecorded mortgage satisfactions. In addition, the statute would help homeowners selling or refinancing their homes by setting reasonable time frames for receiving necessary mortgage information. The Court also observed that although there was no reason mentioned for requiring payoff documents to be without charge, it can be reasonably inferred that the legislature intended to compel mortgage lenders to provide satisfactions in an expeditious manner, and determined that mortgage lenders were not entitled to additional compensation for this ministerial act.

Norwest argued that since Negrin failed to make her request for the payoff letter in writing by certified or registered mail, she was not entitled to seek relief and that her complaint should be dismissed.

The majority of the Court disagreed. It ruled that the fact that the statute expressly prohibits a mortgage lender from imposing fees for payoff letters demanded in writing, does not grant license to impose unwarranted and unauthorized fees merely because the mortgagor happens to request the payoff documents by telephone. Thus, the Court held that absent any evidence that Norwest was justified in doing so, its imposition of a $10 fax fee and a $13.50 recording fee for which no service was performed, is prima facie evidence of a violation of RPL [section]274-a.

As a matter of common sense, the payoff statement is a single page document that can be faxed as easily as mailed and thereby does not justify a fax charge. Furthermore, the statute unambiguously states that a mortgage lender "shall not charge" a fee which must include a delivery fee, even by fax.

The Court then considered the claim by Norwest that even if the statute was violated it does not grant a right to a private individual to sue for damages. The Court stated that it is true that not every violation of a statute is actionable by an injured individual. Rather, there must be either an express or implied private right of action by and aggrieved party.

In examining the statutory provisions and the legislative history, the Court concluded that the plaintiff does have a private right to sue for damages for Norwest's improper imposition of the fax fee and recording charge. Negrin is a member of the class for whose benefit the law was adopted, the recognition of her right to sue would promote the legislative purpose, and her right to sue would be consistent with the legislative scheme. The purposes behind the enactment of this statute was to ease the burden upon property owners when dealing with their lenders.

The Court also considered the issue of whether the unlawful fax fee of $10 and the recording fee of $13.50 warranted the plaintiff's claim that Norwest was engaged in "consumer fraud" in violation of General Business Law [section]349 (a). This statute makes it illegal to engage in deceptive acts and practices in the conduct of any business.

On deciding that Negrin had a valid claim for consumer fraud, the Court rejected Norwest's argument that since Negrin was aware of the fax fee and recording charge well before she closed on the sale of her condominium apartment, no fraud was committed. The Court held that Negrin was at the mercy of the lender. If she wanted her mortgage satisfied, she had no choice but to pay the $23.50.