I have not seen this type of fee yet, however I believe that it is prohibited by RESPA.  I don't believe that a settlement agent is permitted to mark up a third party fee unless they are adding value in the process.  Section 8 of RESPA prohibits anyone from giving or accepting a fee, kickback or any thing of value in exchange for referrals of settlement service business involving a federally related mortgage loan. In addition, RESPA prohibits fee splitting and receiving unearned fees for services not actually performed.

There have been several law suits regarding this type of markup. The most prominent is Echevarria v. Chicago Title.  The suit was based on a claim that Chicago Title marked up the recording fee of the mortgage and kept the overage.  The plaintiffs argued that this was illegal fee splitting because they shared the recording fee with the county recorder, and the trial court agreed.

However, the case was overturned by the Court of Appeals, which stated that the recorder charged its normal fee and did not share in the overage, thus there was no third party involved in the splitting of the fee.

HUD's position in the past has been that Section 8(b) is not "limited to situations where at least two persons split or share an unearned fee," but rather renders any increases in passed-on charges unlawful.  I do not know if they have changed their position on this, but I think they will probably be addressing it with more legislation in the future.  In any regard, the court felt that HUD was "expanding RESPA liability past the point authorized by Congress" with this interpretation of Section 8.

At this time, the courts seem to disagree with HUD on the matter, but I would not want to be involved in this type of marked-up fee.  I think that increasing a fee when nothing has been done to increase its value is morally wrong, regardless of the current regulations or case law.

I haven't seen any updates on this topic in a while, so maybe something has changed if these fees are becoming more common.  Still, if it walks like a duck, and it talks like a duck, its probably a duck. 

Maybe if anyone has more information they will share it with us.

Good topic,
Robert A. Franco
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