RSK.IQ Question of the Week 10/19/15

Closing Attorney Fees under TRID and as a Finance Charge


The Bank made a loan in Georgia. The Contract of Sale states that the Borrower can select the closing attorney and the closing attorney will close for the Bank. The Bank disclosed the fee in section C of the Loan Estimate with a 10 percent tolerance and included it in the “Additional Details for Services You Can Shop For”. Is this correct and is the fee considered a prepaid item finance charge?

Response Summary

Ordinarily, the services of a closing attorney would not be services for which a consumer would be allowed to shop.  In this case, however, state law gave that right to the borrower, meaning that they were services the borrower could shop for. If the Bank listed the service and estimated fee in “Services You Can Shop For” and the name and contact information of at least one attorney in “Additional Details for Services You Can Shop For,” it will have satisfied the TRID requirements.

If the Bank required a closing attorney, then the fee would probably be included in the finance charge, even if the borrower chose the closing attorney.

Response Detail

On the face of it, the Bank properly disclosed the service and fee of the closing attorney, assuming that the disclosure fulfilled the requirements of the TILA RESPA Integrated Disclosure (“TRID”) Rules.

Generally, the Loan Costs disclosed on the Loan Estimate are those costs paid by the consumer to the creditor and third-party providers of services the creditor requires to be obtained by the consumer during the origination of the loan. 12 CFR §1026.37(f).

Loan Costs are broken down into three categories:

  • Origination Charges
  • Services You Cannot Shop For
  • Services You Can Shop For

“Services You Can Shop For” are provided by persons other than the creditor or mortgage broker and are services that the consumer can shop for and will pay at settlement. 12 CFR §1026.37(f)(3).

In this case, the Bank would have required a closing attorney, which is usually a service the consumer would not have been allowed to shop for. Under Georgia law, however, the borrower has the right to choose the closing attorney. Since the borrower would have been allowed to shop for the attorney providing this service, it would have been properly listed on the Loan Estimate in Loan Costs under “C. Services You Can Shop For.”

The Bank would have used clear terminology in describing the service – “closing attorney” would have been sufficient – and if there was more than one service listed in “Services You Can Shop For,” they would have been arranged in alphabetical order. 12 CFR §1026.37(f)(5).

When the consumer is allowed to shop for a service, the Bank must provide a list to the consumer (“Additional Details For Services You Can Shop For”) with at least one provider of the service listed on it. The list would have identified the service, the estimated fee, and the name and contact information for the provider. § 1026.19(e)(1)(vi); Official Interpretations, ¶37(f)(3)-1.

If the Bank listed the service and fee in “Services You Can Shop For” and the name of at least one provider in “Additional Details for Services You Can Shop For,” then it fulfilled the TRID requirements.

As to whether the fees of the closing attorney are to be included in the finance charge, Regulation Z provides as follows:

Fees charged by a third party that conducts a loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor:

  1. Requires the particular services for which the consumer is charged
  2. Requires the imposition of the charge
  3. Retains a portion of the third-party charge, to the extent of the portion retained. 12 CFR §1026.4(a)(2)

If the Bank required the services of a closing attorney, then the fees of the attorney would be included in the finance charge even if the borrower selected the closing attorney.

Regulation Z provides an exception to this requirement. If a lump sum is charged by the attorney for conducting or attending a closing, it would be excluded from the finance charge if the charge is primarily for services related to such services as preparing or reviewing documentation or the title, which would be excluded in under section 1026.4(c)(7) of the regulation. Official Interpretations, ¶¶4(a)(2)-2, (c)(7)-2.

This entry was posted on Monday, October 19th, 2015 at 2:00 pm.

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