The decision directly affects consumers in Minnesota, Missouri, Iowa, Arkansas, Nebraska, and the Dakotas. The two earlier decisions covered homebuyers in Maryland, Virginia, North and South Carolina, West Virginia, Illinois, Wisconsin and Indiana.
The Department of Justice, which had filed a friend-of-the-court brief in the latest case on behalf of the Bush administration, lost what may have been its best — and last — shot at reversing the tide of federal appellate decisions sanctioning markups.
The National Association of Consumer Advocates also had filed a brief in support of HUD and the homebuyers.
"That should be the last nail in the coffin" for the government's position, said Washington attorney Phillip Schulman, who represents mortgage and title companies and has strongly opposed HUD efforts to ban markups.
Another Washington lawyer deeply involved in the issue, Sheldon Hochberg, said the decision reaffirmed that a federal agency "cannot go beyond what Congress adopted," even if the cause may appear to be in the interest of consumers. Hochberg added that the government's 0-for-3 record opposing markups should discourage it from challenging lenders and title agencies anywhere else in the country over the issue.
HUD officials had no comment on the decision, nor did officials at the Justice Department.
Where does this leave you as a mortgage borrower?
In the 15 states covered by the three appellate-court decisions, you have no federal legal protections in force against unlimited markups of fees. Absent an unlikely U.S. Supreme Court decision or congressional legislation to the contrary, markups are legal in those states because federal appellate-court decisions represent the law of the land.
In other states, including Washington state, the presumption must be that HUD's ban against markups remains in effect. But HUD may be in a weak position here: It can speak with a booming voice warning lenders to avoid markups, but can it enforce its rules in the courts?
That is questionable, given the strikeout record thus far.
Consumers may not be without legal remedies, however, even in states where federal prohibitions against fee-padding have been nullified. Many states have laws covering unfair trade practices, fraud and settlement services, and they are aggressively enforced by their attorneys general. Large, intentional last-minute markups of settlement fees may well be illegal under your state laws.
Finally, at the federal level the likelihood now is that Congress will be asked to explicitly prohibit or limit markups, given the apparent ambiguity of current law.
There is a good chance that could happen this session as Congress evaluates settlement-cost reform proposals made by HUD Secretary Mel R. Martinez.
But as always with Congress: Don't bet on it. |
