Maryland Judge Says No to Federal Preemption for Brokers

In an opinion order filed by the Court of Appeals of Maryland, it was determined that the state’s Finder’s Fee Law, which sets limits on broker fees, was not preempted by the Federal Depository Institutions Deregulation and Monetary Control Act.

The opinion ruled that federal law designed to protect lenders from state legislation does not apply to mortgage brokers because they do not fall under the definition of “creditors.”

“This is an extremely important decision for consumers,” commented Paul Bland, a staff attorney of Trial Lawyers for Public Justice, which argued the case before the Court of Appeals. “The Court made clear that predatory mortgage brokers who charge sky-high fees cannot hide behind federal law to avoid accountability,” he said in an announcement.

Savings First declined to comment on the case.

The opinion reversed a ruling of the Frederick County Circuit Court that dismissed the lawsuit borrower Linda R. Sweeney brought against Savings First Mortgage LLC in March 2004.

Sweeney reportedly sought a $30,564 judgment against Savings First on allegations that the fee it charged on a second refinance loan violated Maryland Finder’s Fee Law.

Savings First initially brokered a refinance loan in August 2000 in the amount of $140,250 and received a mortgage broker fee of $8,427. Less than a year later, the Owing Mills, Md.-based broker arranged a refinance loan on the same residence for Sweeney in the amount of $158,400 and received $10,788, according to the appeals court decision document.

The finder’s fee law limits the fee to 8% of the amount of the loan or advance, according to the order, and if a broker obtains a loan on the same property more than once within a 24-month period, it may charge a finder’s fee on “only on so much of the loan as is in excess of the initial loan.”

Sweeney alleged that the maximum broker fee Savings First was allowed by Maryland law was $1,452, or 8% of the amount in excess of the first refinance loan, the court document said.

Savings First contended that it was subject to federal statute, which prohibits a state from “expressly limiting the rate or amount of interest, discount points, finance charges, or other charges” applying to qualifying mortgages, the opinion order said.

The Court of Appeals found brokers fell outside of the federal statute that applies to creditors or lenders.

The opinion order stated that Maryland defines a finder’s fee as “any compensation or commission directly or indirectly imposed by a broker and paid by or on behalf of the borrower for the broker’s services in procuring, arranging, or otherwise assisting a borrower in obtaining a loan or advance of money.”

“In less than two years, Ms. Sweeney paid more in fees than she makes in an entire year working hard as a bus driver,” said Scott Borison, a Maryland lawyer who is co-counsel for Sweeney, in an announcement. “Without this Maryland law, there would be no protection for Maryland consumers against greedy brokers.”

The appeals court sent the case back to the Circuit Court to determine whether Savings First charged excessive fees in violation of the Finder’s Fee Law, according to the announcement.