Federal Appeals Court Reverses Denial Of Class Action Status In Realty "Junk" Closing Fee Suit

Syndicated real estate columnist Kenneth Harney recently wrote:

• Just about anybody who bought a home or took out a mortgage in the past five years has run into them in some form: mysterious fees from realty brokers, lenders, builders and title agents — "admin", "processing," "doc-prep" and "regulatory compliance" among some of the opaque names — that lumped $200 to $500 extra onto the consumer's bottom line at settlement. [...] Now a federal appellate court has weighed in with a decision involving a realty firm's $149 mandatory add-on fee, and a home buyer who filed suit to challenge it. The 11th U.S. Circuit Court of Appeals reversed a lower court's denial of class-action standing in the suit by Vicki B. Busby of Jefferson, Ala. The class action is intended to cover all consumers forced to pay what the brokerage firm termed its "ABC" fee -- an administrative brokerage commission.

• Busby filed suit against RealtySouth, a large Birmingham-based broker, charging that in addition to paying a substantial commission to the firm and its sales agent, she was nonetheless required to pay the ABC fee. Busby said there was no evidence that the firm had actually performed any extra services -- above and beyond the brokerage services compensated by the commissions -- and therefore the ABC fee violated federal law. The appeals court ruled that the lower court had erred in not considering the factual issue -- was any specific work done to justify the extra charge? -- in making its decision to deny Busby's request for class-action certification.

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• In an interview, [Washington, D.C. attorney Phillip L.] Schulman said the court's ruling is not the final word on the matter, but it "underscores the importance of performing actual services in exchange for" fees charged in connection with real estate and mortgage transactions. In other words, a brokerage firm cannot simply dream up new fees and force them upon their unwitting clients. Many brokers have imposed extra charges because their sales agents demanded higher splits of the listing and selling commission dollars.

For more, see Brokerage fee lawsuit is revived.

To view the Federal appeals court decision, see Busby v. JRHBW Realty, Inc. (doing business as Realty South) - decided 1-17-2008.

See also, Transaction Fee Scrutiny Creates Uncertainty.