Payoff Fees at Issue in Class Action

Plaintiffs claim fees prohibited by state law

March 21, 2005

By PATRICK CROWLEY

The six defendants all had mortgage or home equity loans with Astoria or Long Island Savings, which was acquired by Astoria Federal in 1998. In a suit filed in U.S. District Court for the Eastern District of New York the borrowers claim Astoria violated the federal Truth in Lending Act by not fully disclosing fees that consumers were required to pay when prepaying their mortgage loan.

“The case alleges the banks routinely demand and collect fees and other charges not permitted by the mortgage agreements under federal and state laws,” according to a written statement from former New York State Attorney General G. Oliver Koppell of Whalen & Tusa, who is representing the borrowers.

“Such fees constitute finance charges, prepayment penalties, refinancing penalties and payoff fees that are imposed on consumers who pay-off mortgage loans prior to maturity,” Koppell said.

According to Koppell’s statement and court filings, the disputed fees include an “attorney document preparation fee”; a “facsimile fee” to receive a payoff letter or payoff amount; “satisfaction fee”; and a “county clerk” or “recording fee.”

“All allegedly unlawful fees are demanded in Astoria’s payoff letters and are demanded and collected at closing,” Koppell said.

Spatt wrote in his ruling that the Truth in Lending Act “requires creditors to disclose, among other things, all finance charges and prepayment provisions.”

“The ‘finance charge’ is defined as ‘the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit,”’ the judge wrote.

Lawyers for Astoria argued that some of the finance charges did not apply under the law because they were charged after the loan was issued.

Spatt said that some finance charges are “allowed to be excluded” under the law “but only if those charges are disclosed and are reasonable.”

Astoria’s lawyers also argued unsuccessfully that the borrowers “can prove no set of facts which would show that the disputed fees were charged strictly because of prepayment,” according to court documents.

Ruling on the prepayment penalties Spatt found that the “disputed fees and charges were included with the total amount ‘necessary’ to pay-off the mortgage debt.”

“As such, the fees appear to be a condition to prepayment in full and charged before the payoff of the loan,” Spatt said. “The court finds that these allegations are sufficient to allege a claim…for failing to disclose prepayment penalties.”

The borrowers also alleged that Astoria violated The Real Estate Settlement Act, or RESPA, and the Fair Debt Collections Act. But Spatt dismissed those claims.

Spatt did, however, allow five claims under New York state law to remain in federal court, Koppell said.

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com