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Dreher Tomkies LLP
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MARYLAND LAW LIMITING MORTGAGE BROKER FEES FOUND NOT TO BE PREEMPTED BY FEDERAL LAW

The Maryland Court of Appeals has held that the borrower-paid mortgage broker fee limits under the Maryland Finder’s Fee Law were not preempted by Section 501(a)(1) of the federal Depository Institutions Deregulation and Monetary Control Act (“DIDMCA”). Sweeney v. Savings First Mortgage, LLC , No. C-04-0471, 2005 WL 1866071 (Md. Aug. 9, 2005).

The plaintiff borrower in the case brought suit against a mortgage broker alleging that the finder’s fee that the broker charged in connection with a refinance mortgage loan exceeded the 8% limitation provided for under the Maryland Finder’s Fee Law. See Md. Com. Law Code Ann. § 12-804(a), (c). The mortgage broker argued that the Finder’s Fee Law was preempted by Section 501(a) of DIDMCA, which provides that a state is prohibited from expressly limiting the rate or amount of interest, discount points, finance charges, or other charges applying to qualifying first-lien residential mortgage loans. 12 U.S.C. § 1735f-7a(a)(1).

The plaintiff raised a number of arguments against preemption of the Maryland statute. First, the plaintiff argued that DIDMCA only covers state limitations on the rate or amount of interest that a lender may charge, and thus does not preempt state laws regulating finder’s fees. The court noted, however, that the plain language of DIDMCA indicates that finder’s fees fall under the “discount points, finance charges, or other charges” that are controlled by DIDMCA. The court indicated that the legislative history of DIDMCA and regulations issued by the Federal Home Loan Bank Board (“FHLBB”) (now the Office of Thrift Supervision (“OTS”)) support this conclusion.

Second, the plaintiff argued that the loans under consideration were refinance mortgages, not purchase money loans, and thus not subject to DIDMCA. According to the court, however, the plain language of DIDMCA indicates that DIDMCA applies to any loan that is secured by a first lien on residential real property. Thus, the court found that the loans under consideration should not be excluded from the scope of the DIDMCA preemption because the loans were secured by a first lien regardless of the fact that they were not purchase money loans.

Finally, the plaintiff argued that DIDMCA should not apply because it applies only to creditors and not mortgage brokers. The mortgage broker responded that the transaction under consideration is a qualified mortgage because it meets the three requirements of Section 501(a)(1) DIDMCA, and thus the Finder’s Fee Law should be preempted regardless of whether it is a creditor. The court indicated that either party’s interpretation was plausible from a fair reading of the plain language of DIDMCA; however, the court ultimately agreed with the plaintiff based upon DIDMCA’s legislative history and a 1989 OTS letter in which the OTS commented that the FHLBB “noted that certain lenders will be eligible for usury preemption if they are considered creditors” under the federal Truth in Lending Act (“TILA”). Because the mortgage broker did not qualify as a “creditor” under the TILA, the court held that the Finder’s Fee Law was not preempted in the case.

-- Jeff Langer and Chuck Gall