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My bank is exploring the use of a third-party service that will electronically record mortgages and charge a nominal fee, which would be passed on to the borrower. Would this fee be exempt from the finance charge?

My bank is exploring the use of a third-party service that will electronically record mortgages on dwelling secured loans. The service will charge a nominal fee, which my bank would pass on to the borrower. Would this fee be exempt from the finance charge under either §1026.4(c)(7)(ii) or §1026.4(e) in Regulation Z?

No. The first citation referenced exempts “fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents” in transactions secured by real property or in a residential mortgage transaction, assuming they are bona fide and reasonable in amount. If a settlement attorney or title company performed this task and included it in a lump sum charge, then it may be eligible for an exemption (assuming that the charge is primarily for services related to items listed in §1026.4(c)(7)). The second citation exempts “certain security interest charges,” but only if they are itemized and disclosed as well as actually paid to public officials. Comment 1.ii to §1026.4(e) clarifies that the exemption does not apply if the obligation is between the creditor and a third party. (February 2021)

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