HUD Attorney Clarifies Add-on Fees

April 1, 2010

Source: Washington Post Writers Group, Kenneth R. Harney

Add-on fees have been a source of confusion since a U.S. District Court last year ruled that these fees violate federal law when the bill doesn't detail specific services for which the fees are being billed.
Recently, Helen R. Kanovsky, general counsel for HUD, released some more detailed guidance about the court ruling. She wrote:
Commissions may be quoted "using a flat fee, a percentage of the sales price, or a combination" - all listed on the revised HUD-1 sheet. But Kanovsky said that if the total charges "exceed the amount of the commission for listing and selling the home that is reflected in the real estate broker's or agent's listing agreement," then HUD has the right "to determine whether additional services were provided" to justify the add-on.
If few or no services appear to have been performed, HUD can consider these charges a violation of the Real Estate Settlement Procedures Act. Such a violation is subject to significant penalties.
Kanovsky also warned against charging fees when there is no contract or other agreement that permits the levying of these charges. For instance, an administrative fee with no contractual language could be considered by HUD as an illegal fee.

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