Doc Prep Fees, APR, and Prepaid Finance Charges

Question:

Are document preparation fees which are charged by the lender included in the APR and prepaid finance charge?

Answer:

Maybe. It depends on what you mean by "Doc Prep fee." Let's review what Reg Z has to say in 226.4(c)(7). The following are NOT finance charges:

Realestate related fees. The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:

(ii) Fees for preparing loanrelated documents, such as deeds, mortgages, and reconveyance or settlement documents.

Keep in mind that RESPA states you cannot charge for disclosure preparation [see 24 CFR 3500.12].

So, you can be reimbursed for your time for preparing the note, deed (or mortgage), your time for ordering title insurance, appraisals, credit reports, your time for reviewing these items, etc. If you are charging a "reasonable" fee for this, it is NOT a finance charge.

First published on BankersOnline.com 9/2/02