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Lenders Lose MO Doc Prep Cases

Lenders Lose MO Doc Prep CasesOnly lawyers can prepare closing documents

September 4, 2007


A $125 document preparation fee paid by more than 1,000 mortgage borrowers to a St. Louis lender was illegal and will have to be repaid, with treble damages and other penalties, for a total of $1.2 million, according to a unanimous decision by all seven judges on the Missouri Supreme Court. The case follows multiple settlements by other lenders with tens of thousands of borrowers.

In the latest case, defendant Midwest Bank Centre could ask for a rehearing, conceded David T. Butsch, attorney for the plaintiffs. But because all sevens judges concurred, “That decision is going to stick,” he told

The decision, issued Tuesday, upheld a two-year-old decision made by St. Louis County Circuit Court Judge Mark D. Siegel, who ruled that Midwest Bank owed $1.2 million in refunds and damages to borrowers who had paid the document preparation fee.

The illegality of the doc prep fee, according to the Supreme Court decision, rests on “the fact that a nonlawyer charging a fee for document preparation constitutes the unauthorized practice of law.”

After Judge Siegel’s decision the Missouri legislature enacted a measure stating that no bank or lending institution “shall be deemed to be engaging in the unauthorized practice of law” for imposing fees of less than $200 “for completing residential loan documentation for loans made by that institution.”

However, the Supreme Court noted that the case it ruled on predated the effective date, August 28, 2005, of the new measure.

But the court, in its opinion, suggested that it need not follow this measure, bluntly stating, “The judiciary is necessarily the sole arbiter of what constitutes the practice of law.”

“I think,” said Butsch, “they’re serving notice to lenders that, even though the statute may exist, it doesn’t mean they’re going to follow it. Basically, the law in Missouri and every other state leaves it to the judiciary to determine what constitutes the practice of law. The judiciary might get guidance from the legislature but they’re not bound by what the legislature says the practice of law is.”

But the court raised another potential issue when it noted that Midwest Bank’s document preparation fees were for the completion of forms that placed each loan in the proper format to be sold on the secondary mortgage market — “a benefit to Midwest.”

A similar case against Countrywide’s charging of doc prep fees of about $125 to some 23,000 borrowers is currently before the Missouri Supreme Court, but the issue is not the primary one of the unlicensed practice of law but instead is the extent of the statute of limitations.

“They’ve taken the position that it’s two years and we take the position that it’s six years,” Butsch said. “The Supreme Court will have to sort that out.”

In that case St. Louis County Circuit Court Judge Gary M. Gaertner Jr. ordered Countrywide to pay a total of $6.2 million in damages and fee reimbursements on the basis of six years in which the fee was changed. Countrywide’s obligation would be reduced to about $4 million if its argument is upheld, according to Butsch.

The attorney said that in another suit, from which the Midwest Bank case had been severed, his St. Louis law firm, Green Jacobson & Butsch, reached settlements with such other lenders as US Bank, involving 20,000 borrowers; American Equity Mortgage, which settled with 11,000 borrowers; and Chase Manhattan Mortgage Corp., involving 8,000 borrowers; with borrowers receiving at least reimbursements for the documentation fees they had paid. He declined to be more specific because of the terms of the settlements.

Butsch’s firm had originally filed class-action suits against 26 lenders in 2002.


Court Rules Against Lender in Mo. Doc Prep Case
More than 60,000 holders of home mortgages in Missouri could get checks in the mail they weren’t expecting over the next two years if a Clayton law firm continues to win cases against banks and other lenders over an obscure issue.

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