Class-action suit that may affect thousands alleges bank charges were illegal, excessive

Richard J. Dalton Jr. Consumer Watch

January 14, 2007

David and Carol McAnaney didn't think twice when they received a payoff notice for their mortgage that included more than $200 in fees in addition to their final payment in 2002.

The letter from Astoria Federal Savings listed an attorney document preparation fee of $125, a fax fee of $25 and a recording fee of $64.

The McAnaneys paid the fees. But two years later, the Belle Terre couple and several other Astoria Federal customers charged in a lawsuit that the mortgage contract, as well as federal and state law, prohibit the fees. The suit further claims that the fees should have been disclosed as part of the finance charge and that they exceeded the reasonable value of the services provided.

U.S. District Court for the Eastern District of New York in Central Islip certified the suit as a class action in September.

The amount of money varies for each customer but involves a few hundred dollars in each case. "Obviously, you start to look at that from the perspective of the class-action suit when there are thousands of people that have all paid this," David McAnaney said.  

Joseph Tusa, a partner at Whalen & Tusa, a Manhasset based law firm handling the case, said: "If you asked just about anybody whether or not they would prefer some multibillion-dollar bank to keep your 300 bucks or you keep your 300 bucks, I have a feeling I know what most people would say." 

Another bank sued 

The law firm has filed a similar suit against Washington Mutual, with three of the four plaintiffs from Long Island.

Tim McGarry, spokesman for Washington Mutual, said the bank "intends to defend itself vigorously in this matter" but wouldn't comment further.

Similar cases filed elsewhere have had mixed results.

The class in the Astoria Federal case comprises current or former customers who obtained residential loans carrying fees deemed in violation of the contract or the law. The class action could involve tens of thousands of current and former customers, according to court filings.

Astoria Federal gets millions of dollars in fees for servicing loans: $5 million in 2005, down from $5.8 million in 2004, according to filings with the Securities and Exchange Commission. Astoria Federal spokeswoman Tara Rogers said the company doesn't comment on pending litigation.

Fees assessed when residential loans are paid off, including unauthorized charges, aren't new, but class actions have helped make the practice less common, said Emily Madoff, a partner at Wolf Popper Llp, a law firm specializing in consumer fraud, with offices in Manhattan and Great Neck.

Michele Raphael, another partner at Wolf Popper, said some banks tout no-fee loans but include hidden charges. "When they say they're not going to charge you a fee, they don't charge you that fee -but they call it something else."

That's what Joseph Policano of East Hampton claims happened to him. The retired public relations executive, 73, said he insisted on a home-equity loan without a prepayment penalty at Suffolk County National Bank in 2002, and the bank granted him one. But a year later, when he went to refinance, the payoff letter included a substantial fee. "They said, 'This is not a prepayment penalty. It is a recovery of costs,'" Policano said. "I really thought it was like a swindle."

Because of the fee, he decided not to refinance. The result: He was stuck with higher interest payments.

Douglas Ian Shaw, senior vice president of the bank, said the fee was not a prepayment penalty. "What he had was fees waived up front on the condition that he carried the loan over a period of time," Shaw said.

A prepayment penalty typically applies to installment loans but very rarely to mortgage loans, Shaw said, and is charged if a loan is paid before maturity.

A cautionary tale

Other times, contracts stipulate prepayment fees, but customers expect verbal warnings.

Benjamin Malerba, 60, of Rocky Point signed a contract for a $150,000 home-equity line of credit with Bank of America in June 2004. The contract listed a fee of $1,100 if the line was closed within three years.

But Malerba said he wasn't aware of the fee until October, while he was refinancing the line. If he had waited just nine more months, he could have avoided the fee. But already prepared to close, he paid it.

"I never knew if you prepaid something there would be a penalty," Malerba said.

The bank's fee recovered a portion of its costs, including the mortgage tax incurred in issuing the loan.

The incident makes clear that customers should scrutinize their loan contracts and hold the loans for the required period of time. Bank of America spokesman Terry Francisco said the bank offered to waive the fee if Malerba refinanced with the bank.

In September 2004, three months after Malerba opened his line of credit, Bank of America responded to customers' demands by launching home-equity loans and lines of credit with no closing costs, no annual fees and no early cancellation fees for loans up to $500,000.

How to avoid fees, surprises Some tips to avoid fees when paying off a mortgage, home equity loan or line of credit:

When you obtain a loan, ask about payoff fees. Read the contract closely.

Be aware that a loan or line of credit that touts "no prepayment penalties" may have other fees to recover closing costs if the account isn't held for a certain period of time specified in the contract.

Ask about fees again before you plan to pay off a mortgage or home equity loan or line of credit.

If you think you're being charged an unwarranted fee, ask a bank employee to explain it. Press for details, such as the section of the contract that specifies the fee.

Ask if there is any way to avoid the fee, such as processing some paperwork yourself.

If the bank's explanation isn't satisfactory, consult a real estate lawyer.

A fee to record a mortgage satisfaction is legitimate, as the bank must pay the fee to the county. Verify the amount of the fee with your county clerk's office. Fees for recording the satisfaction of a mortgage depend on the number of pages, endorsements and assignments. In Nassau the record fee is usually $41.50, and in Suffolk, usually $61.50.

You can also prepare your own paperwork to record the satisfaction of the mortgage. Though you would still have to pay the recording fee, you may avoid other bank fees.

Visit the Web sites below for more information on the fees and how to record a mortgage.

For homes in Nassau county, visit www.nassaucounty ny.gov/agencies/Clerk/ and click on "fees" then "real estate fees." For information on recording a satisfaction, click "Nassau County clerk services" on the left-hand side, then "land recording."

For Suffolk county, visit www.co.suffolk.ny.us. Under "elected officials" choose "county clerk," then click "services & fees" then "satisfaction & assignment of a mortgage." The bottom of the page has a link "How to record a mortgage satisfaction."

Copyright 2007 Newsday Inc.