Mortgage Bank Charges $450 Processing Cancellation Fee
by Ben M. from Wallingford, CT
Ask Kate about the mortgage bank that charges a $450 processing fee for cancelling a home loan application: Ben cancelled his 15 year mortgage application two days after accepting the bank's offer but before the appraisal was done.
Three months later, he discovered the bank had charged a $450 cancellation fee to his credit card. Who can he complain to?
Ask Kate: Mortgage Processing Fee Charged After Cancellation By Ben M. from Wallingford, CT
Last July, my wife and I started looking at refinancing our home mortgage. We were trying to take advantage of low rates while we could, and not increase the length of our payoff, which had 20 years left.
We were considering both 15 and 20-year options with three different banks. We made a decision to pursue a 15-year mortgage with a Home Mortgage division of a bank with which we have both bank and credit accounts already. They did not have a 20-year option.
We accepted their offer, and the appraiser called me for an appointment, but we reconsidered and I never made an appointment.
Here is the time line:
- July 27, 2015 - We accepted the offer.
- July 29, 2015 - I canceled the application.
- August 6, 2015 - They charged us $450 on our credit card with the same bank.
- Late September, 2015 - I did not know about the charge until September, and did not know where it came from, so I disputed it, and never heard back from the credit card.
- May 8, 2016 - I finally followed up with the credit card division to see what happened. They have no record of the outcome of the dispute, and suggested that I call the Mortgage division.
- May 9, 2016 - Called the Mortgage division. After a couple of conversations, I spoke to a manager, and he told me to call the manager of the original loan officer.
- May 9, 2016 - Left one message with manager, and have not received a response.
- May 17, 2016 - Left another phone message. I also forwarded my email chain from the original application and cancellation. process with a request for a refund. I asked for a referral to someone who has that authority if he does not. I also mentioned that I am a long-time, loyal bank and credit card customer of the same company, and expect at least the favor of a reply.
My questions to you are as follows:
- Do I have any legal footing, due to the fact that I canceled within 2 business days?
- Are there any independent agencies that I could contact to help me get my money back?
Thanks for your time and potential advice.
Kate's Answer: Mortgage Processing Fee Charged After Cancellation
In most cases, it's a poor business policy for a mortgage bank to charge a processing fee after the cancellation of a loan application, even if it's legal.
Mortgage Cancellation Fees Are a Bad Business Practice
Loan originators are actually commissioned sales people who do not get a paycheck if a mortgage transaction does not close. I get it. I've been there. But in my opinion, that is no excuse to penalize the borrower for a cancellation. The time spent on processing a home loan that doesn't close should just be regarded as a cost of doing business.
It would be much better to leave the borrower with a pleasant feeling about the firm. In fact, doing this might likely result in future referrals of friends and family.
Reading the Fine Print on Mortgage Documents
I suspect by your writing style that you're a detailed person. Even so, I urge you to once again peruse your initial mortgage disclosures for mention of a processing cancellation fee. Assuming you did not agree to paying the fee, it may be time to file a complaint.
See more about Understanding Mortgage Fine Print
Filing Complaints on Your State's .Gov Website
I'm not familiar with Connecticut's laws but I assume the state allows banks, mortgage companies, credit unions, and brokers to originate home loans. If so, they may operate under separate licenses which govern cancellation fees.
So determine the type of company that originated your mortgage. Then on the official government website of Connecticut, go to DOB: Consumer Assistance from the Department of Banking
to file a complaint, clearly stating the name of the company charging the loan cancellation fee. Include the timeline you've carefully maintained and documented. Explain your expectations to the DOB, for example, request both a $450 refund and a letter from the lender to send to the credit bureaus to remove any erroneous reporting.
Contact the Credit Bureaus
Credit bureaus are not the most attentive companies. So be prepared to contact them repeatedly if they do not respond to the written instructions from the lender to remove any mention of the $450 charge and/or a resulting collection.
See Overcoming Difficulties Correcting Credit Report Errors
for more help.
Three Day Right of Rescission
I should also mention that the federal government grants a three day right of rescission to mortgage borrowers who are refinancing their home loans. During the rescission period, borrowers may cancel a refinance without owing fees.
Read more at PrePayment Penalty and 3 Day Right of Rescission
. You'll also find more information at this Ask Kate letter: How the Truth in Lending Act Protects Mortgage Borrowers
CR writes... This company is taking us to small claims court to pay a cancellation lock fee along with other items. I can understand charging for the credit report, but now an additional $450 is what they are pursuing.See my response at Mortgage Rate Lock Cancellation Fees.
Go to How to Contact Washington DC and Your State Government
for more agencies that might be able to help you.
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