September 30, 2014

CFPB ANNOUNCES RESPA MSA ENFORCEMENT ACTION

The Consumer Financial Protection Bureau (CFPB) announced today, September 30, 2014, that they had entered into a Consent Order with Lighthouse Title, a Michigan title insurance agency, for entering into Marketing Service Agreements (MSAs) with various real estate brokers with the understanding that the companies would refer mortgage closing and title insurance business to Lighthouse Title.

The CFPB found that Lighthouse Title violated the Real Estate Settlement Procedures Act (RESPA) which prohibits providing something of value to any person with an agreement or understanding that the person will refer real estate settlement services.

The CFPB noted that Lighthouse's MSA agreements made it appear as if the payments would be based on marketing services the companies were supposed to provide to Lighthouse Title. "Lighthouse actually set the fees it would pay under the MSAs, in part, by considering the number of referrals it received or expected to receive from each company." The Consumer Financial Protection Bureau's investigation found that the companies on average referred significantly more business to Lighthouse Title when they entered into MSAs than when they did not enter into them.

The CFPB issued a civil money penalty against Lighthouse Title in the amount of $200,000.00; prohibited Lighthouse Title from entering into any Marketing Service Agreements in the future; ordered Lighthouse to terminate all existing MSAs; and Lighthouse must document for a period of five years all exchanges of things of value worth $5.00 or more with persons in a position to refer business.

Continue reading "CFPB ANNOUNCES RESPA MSA ENFORCEMENT ACTION" »

September 29, 2014

Wells Fargo announces RESPA-TILA Integrated Disclosure Form Plans

Wells Fargo announced that effective August 1, 2015 it will control the generation and delivery of the borrower's Closing Disclosure form in anticipation of the TILA-RESPA Integrated Disclosure Rule. The new Closing Disclosure is a mix of the existing Truth-in-Lending (TIL) disclosure and the Settlement Statement (HUD-1). Wells Fargo stated in the Wells Fargo Settlement Agent Communications newsletter on September 24, 2014 they will be taking over this process in order to meet internal compliance and governmental regulator compliance expectations on the bank.

Wells Fargo said the reason they will be delivering the Closing Disclosure Form is because they want to maintain evidence the borrower received the disclosure at least three days prior to the closing since this is a critical compliance requirement they must meet. The bank disclosed that having readily accessible data for internal and external compliance audits was another major reason for this decision.

Wells Fargo disclosed that their view under the new rules is "...that the settlement agent continues to be responsible for the Seller's information and will prepare and deliver the Seller's Closing Disclosure. A copy must be provided [by the Settlement Agent] to Wells Fargo for our loan file in order to comply with the final rules."

One of Wells concerns in the newsletter is back to back closings or in situations where you have multiple closings all connected with different lenders and settlement agents which would encounter problems if the first closing experiences a disclosure form problem and a re-disclosure is required.

We are expecting numerous other banks and lenders to announce that they will also be generating and delivering their own Closing Disclosure forms due to litigation risks and enforcement concerns stemming from the RESPA-TILA Integrated Disclosure rules. How will this play out with Unauthorized Practice of Law (UPL) concerns? The Consumer Financial Protection Bureau appears to be ready to take on this issue and claim federal preemption in favor of the lending industry.

August 29, 2014

CFPB ENFORCEMENT: IS THE CFPB LOOKING AT RESIDENTIAL MORTGAGE ONLINE LEAD GENERATION COMPANIES?

The Consumer Financial Protection Bureau often provides subtle clues as to where they may be headed on the enforcement front and on November 6, 2013 they addressed the topic on their website about online Lead Generation and consumer safety involving payday loans. The topic "Is applying for a payday loan online safe?"

The CFPB stated that anytime a consumer gives out sensitive personal and financial information on the Internet there are risks involved to the consumer. They warned consumers that if a consumer applies online for a payday loan online, the consumer could be increasing their risk significantly. The CFPB stated the reason for this is because many websites that advertise payday loans are not lenders. They are businesses known as "lead generators" which make money primarily by finding customers for lenders.

The Bureau expressed concern that the online application or form that consumers filled out could be sold to a lender who offers to make the consumer a loan. The Bureau also indicated they have concerns as well that multiple lenders or other service providers could pay for this information causing the them to contact or email the consumer.

"Lead generators might not find you the lowest cost loans, and you should be cautious of sites that promise they will. Many consumers can also be confused about who actually made the loan, which makes getting help when the you [the consumer] need it harder."

They even provided a tip to consumers on what to look out for "Key phrases can help you spot a lead generator. It can be hard to tell if the website you click on is a lead generator or an actual lender. Lead Generators might disclose that they are not lenders somewhere on their site, but this information can be hard to find. In addition, look for phrases like "matching you with lenders," "connecting you with a network of participating lenders," or "something similar, as an indication that you [the consumer] is on a lead generator's site."

The CFPB also dropped another hint as to payday loan lead generators which should bear careful examination to everyone in the residential lending industry who is purchasing leads from an lead generation company. Another CFPB webpage titled "What is the difference between an online payday lender and one with a storefront?" said consumers need to make sure the online website is licensed to do business in the consumer's state and whether they follow the state's payday lending laws.

If the CFPB starts looking at online Lead Generation industry involving residential mortgage loans will they apply an even stricter standard to those lead generation companies who solicit mortgage information or a mortgage conversation from consumers and sell it or even pass it on to a lender? Will the CFPB take the position that the Lead Generation companies are violating the SAFE Act if they aren't licensed in the state they are operating in? And if they are licensed under the SAFE will they be violating the broadly defined Loan Officer Compensation Rule?

Will the Bureau deem website statements like "We can help you find a mortgage, call us!" by a Lead Generation company to be a advertising and soliciting a mortgage conversation from a consumer? In a number of states this could be considered a violation of the SAFE act even if no payment is made by the lender or loan officer to the Lead Generation company because this type of solicitation would trigger a license.

Even if the Lead Generation is properly licensed under a particular state's SAFE Act if they sell that lead to an unlicensed lender in that state then the CFPB could pursue an action against the Lead Generation company because the Lead Generation company assisted or facilitated a consumers information to be sold to an unlicensed entity under the various third party vendor management bulletins.

Some states already require Lead Generation companies collecting information be licensed as "mortgage brokers" such as Arizona and Virginia. Most of the payday lenders in Ohio for example have become Mortgage Brokers under the SAFE Act as it takes them out of the state usury statute for payday lenders.

What types of online Lead Generation companies could be issues of concern?
(1) those unlicensed lead generation companies who tell the consumer whether they are "Qualified for a Loan or Not";
(2) those online Lead Generation companies who collect any sort of non-public data (the definition of what non-public data is varies from state to state) and who fail to inform and obtain the consumers consent that their information will be shared with a third party; and
(3) those online Lead Generation companies where the lead generation company has spoken directly with the consumer and then transfers the "Live Handoff" over to the lender or Loan Officer (especially if the Lead Generation company is not licensed) If they act a "sub-mortgage broker" then it may be best to stay away because this could violate the Loan Officer Qualifying Rule effective Jan. 1, 2014.

Additionally, the CFPB has broad authority to enforce the Fair Lending Laws, Telemarketing Sales Rule, Mortgage Lending and Regulations, Mortgage Acts and Practices Advertising Rule, and the most important law the Unfair, Deceptive or Abuses Act or Practices (UDAAP).

So what might the CFPB examine if a lender or loan officer uses a lead generation company? They will look to see if the relationship is properly disclosed; review privacy and how the consumers data was shared; identify whether party is a third party provider or not; review the lead generation website or advertising portal itself; and they could to review all fees, terms, and conditions associated with the lead generation process.

So is the CFPB investigating Lead Generation companies involving residential loans? The answer is YES they are and any companies involved in the lead generation business should be on alert and actively assess the compliance risks associated with the online lead generation industry.

Sometimes the past provides a good glimpse of the future so remember the name Steven Antonakes when it comes to online Lead Generation and CFPB enforcement. Mr. Antonakes was the former Commissioner of the Massachusetts Department of Banks. He is also on the governing board for the Nationwide Mortgage Licensing System (NMLS). When he was the Commissioner of Banks in Massachusetts he was involved number consent orders with unlicensed online Lead Generation companies.

Where is Steven Antonakes now? He is the Deputy Director of the Consumer Financial Protection Bureau whose responsibility is supervision, enforcement, and fair lending.

August 29, 2014

Marx Sterbcow achieves the AV Preeminent Rating from Martindale-Hubbell

New Orleans, LA (PR Newswire) August 29, 2014 - Martindale-Hubbell® has confirmed that attorney Marx David Sterbcow has been given an AV Preeminent Rating, Martindale-Hubbell's highest possible rating for both ethical standards and legal ability.

The AV Preeminent rating is an objective indicator designed to help buyers of legal services identify, evaluate and select the most appropriate lawyer. The reviews are based on evaluations of lawyers by other members of the bar and the judiciary in North America. AV Preeminent® (4.5-5 out of 5) is a significant rating accomplishment – a testament to the fact that a lawyer’s peers rank him or her at the highest level of professional excellence.

Mr. Sterbcow and his firm have had an extensive real estate and financial services law practice since the firm was founded in 2004. He represented the National Association of Mortgage Brokers in its suit against the Federal Reserve Board and has litigated matters involving RESPA, mortgage fraud, and antitrust in several federal jurisdictions. Mr. Sterbcow is also listed to Superlawyers and New Orleans Magazine's Top Lawyers.

For more than 130 years, lawyers have relied on the Martindale-Hubbell AV Preeminent® rating while searching for their own expert attorneys. This rating represents the pinnacle of professional excellence. It is achieved only after an attorney has been reviewed and recommended by their peers - members of the bar and the judiciary. Congratulations go to Marx David Sterbcow who has achieved the AV Preeminent® Rating from Martindale-Hubbell®.

August 15, 2014

CFPB CONSENT ORDER INVOLVING MORTGAGE ADVERTISING AND RESPA

The Consumer Financial Protection Bureau announced they entered into a Consent Order (File No. 2014-CFPB-0010) with Atlanta-based Amerisave Mortgage Corporation; Novo Appraisal Management Corp.; and Patrick Markert on August 12, 2014 for violating a series of laws including Section 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA), Section 8 of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Mortgage Acts and Practices Rule (MAP Rule).

The CFPB found that Amerisave Mortgage Corp., which operates primarily as an online lender, designed its website to advertise and quote mortgage rate information in a deceptive bait and switch lending manner towards consumers. The Bureau stated that Amerisave advertised specific mortgage products online by listing specific mortgage rates in rate tables publicized through the website of an unrelated third-party company ("Rate Publisher") which compiles rate quotes and other information of mortgage lenders who use its service.

Amerisave advertised lower rates than they were actually providing to consumers but once the consumers contacted them for those rate the consumers wound up paying higher rates than what Amerisave advertised. Amerisave also ran banner or display ads on various websites advertising lower rates as well to consumers.


The CEO of Amerisave, Patrick Markert, also had an indirect beneficial ownership interest in both Amerisave and Novo Appraisal Management. The CFPB discovered that Amerisave required almost of all of its customers to use Novo for their home appraisal services. Amerisave referred and required consumers to use Novo more than 99% of the time which is a violation of RESPA Section 8(c)(2). RESPA's Required Use of an Affiliated Business prohibition.

The Consumer Financial Protection Bureau found that Amerisave and its CEO engaged in a marketing and advertising campaign that violated The Mortgage Acts and Practices Rule. The MAP Rule provides in part that "It is a violation of this part for any person to make any material misrepresentation, expressly or by implication, or any commercial communication, regarding any term of any mortgage credit product, including but not limited to misrepresentations about (a) The interest rate charged for the mortgage credit product....(b) the annual percentage rate, simple annual rate, periodic rate, or any other rate, or (c) the existence, nature, or amount of fees or costs to the consumer associated with the mortgage credit product..."

The "Rate Publisher" which was not named in the Consent Order periodically received Amerisave's mortgage interest rate information which the Rate Publisher published on its published rate tables. The CFPB said for a period of close to two years a systemic problem caused Amerisave to lower its mortgage rates lower than it was willing to honor on the Rate Publisher's rate tables for "jumbo conforming loans." Amerisave was aware that the rates they advertised were not accurate and misleading according to the Consent Order.

The Order also states that Amerisave failed to perform any sort of systemic due diligence or quality control to check the accuracy of its listed rates and that the Rate Publisher received consumer complaints about Amerisave and notified them of those complaints. The Rate Publisher also used mystery shoppers to audit the accuracy of Amerisave's rates to which Amerisave failed the Rate Publisher's test five times.

The interest rates Amerisave quoted on Rate Publisher also were problematic because they were based on consumers with credit scores of 800. The CFPB said the 800 credit score methodology they used to advertise and market their interest rates was not disclosed to consumers either. Additionally the advertised rates sometimes were based on consumers paying discount points as high as $10,000 which was not disclosed to consumers.

The CFPB's Consent Order and Stipulation are very detailed and well worth reviewing for all companies involved directly or indirectly in the residential real estate industry. This is a well written consent order by the CFPB which focuses on a myriad of different compliance issues.

Amerisave, Novo, and Patrick Markert agreed to pay $19.3 million dollars as a penalty.

If you have any questions about this Consent Order, need Lender Affiliated Business Arrangement compliance guidance, or have marketing & advertising compliance questions please don't hesitate to give us a call at the Sterbcow Law Group.

July 10, 2014

RESPA: FDIC FINES NEW FRONTIER BANK $70,000 FOR SECTION 8 VIOLATIONS

The Federal Deposit Insurance Corporation entered into a consent order with New Frontier Bank in St. Charles, Missouri on May 5, 2014 which was recently made public. (FDIC-14-0084b and FDIC-13-151k) The FDIC ordered New Frontier Bank to cease and desist from the violating the Real Estate Settlement Procedures Act "RESPA" Section 8, 12 U.S.C. §2607 and its implementing regulation, Regulation X, 12 C.F.R. §1024.14, which is the prohibition against kickbacks and unearned fees.

The FDIC's consent order did not mention the facts surrounding this consent order only that "the Bank shall cease all acts or practices in violation of RESPA and take all necessary steps to effect and maintain future compliance with RESPA."

The consent agreement also ordered New Frontier Bank to reimburse all consumers who were affected by the undisclosed RESPA violations to pay an amount not less than $400 per consumer as restitution for the RESPA violations the FDIC said New Frontier Bank may have violated. The consent agreement did not state how many consumers may have been impacted. In addition to the consumer restitution New Frontier Bank was ordered to pay a $70,000 dollar penalty to the Treasury of the United States.

Sylvia H. Plunkett who is the Senior Deputy Director in the Division of Depositor and Consumer Protection signed off on the consent order on behalf of the FDIC. The lack of information in the FDIC consent order could signal that the CFPB or other regulator is continuing the investigation as was the case In the Matter of Benchmark Bank, Plano, Texas FDIC-11-461k. In the Benchmark Bank consent order the FDIC provided very little information and the CFPB later instituted an enforcement action against Paul Taylor Homes out of Dallas, Texas.

July 9, 2014

RESPA: NEW YORK TIMES QUOTES MARX STERBCOW ON CFPB ENFORCEMENT ACTION

Sterbcow Law Group's Marx Sterbcow was quoted in a New York Times article titled "Cracking Down on Illegal Mortgage Referrals" written by NY Times Mortgage Columnist Lisa Prevost. The article published June 5, 2014, discusses the recent RESPA regulatory enforcement actions by the Consumer Financial Protection Bureau (CFPB) against mortgage, title, real estate brokerages. The CFPB has now been involved in 12 RESPA enforcement actions since taking over from HUD in July of 2011.

Mr. Sterbcow was quoted in his description of the RealtySouth consent order: "That’s Respa 101 of what not to do,” said Marx David Sterbcow, a New Orleans lawyer specializing in Respa issues. “You don’t write it into the contracts and basically steer customers to your affiliated company.”

"Respa is intended to protect consumers from having to pay inflated costs for mortgage and closing services. In looking for violators, the bureau has shown that “they don’t care how big your company is,” Mr. Sterbcow said. “Nor do they care how small your company is.""

The RealtySouth consent order was an enforcement action which was triggered against RealtySouth because it inserted into it's pre-printed contract sale form that consumers were required to use TitleSouth (RealtySouth's affiliated title company). The language in the pre-printed contract which was only in operation for a year stated in Paragraph 5, "Title Insurance. Seller agrees to furnish Buyer a standard form owner's title insurance policy issued by TitleSouth, LLC in the amount of the purchase price."

This was the crux of the RESPA enforcement action although the CFPB also added a seemingly trivial charge against RealtySouth's for not strictly adhering to the exact font and language specifications required in an affiliated business disclosure form. The CFPB argued the disclosure was modified because fonts, word capitalization requirements, and marketing slogans were either not allowed or out of compliance and deviated from the required format.

While CFPB did not identify how many consumers actually opted out of that provision in the pre-printed contract and used a third party title company it didn't matter as the language spoke for itself which is why the RealtySouth action was commenced by federal regulators.

Continue reading "RESPA: NEW YORK TIMES QUOTES MARX STERBCOW ON CFPB ENFORCEMENT ACTION " »

June 12, 2014

CFPB: RESPA SECTION 8 CONSENT ORDER AGAINST TITLE AGENCY IN NEW JERSEY FOR ILLEGAL KICKBACKS AND UNEARNED FEES

The Consumer Financial Protection Bureau announced today another consent order involving violations of Section 8 of the Real Estate Settlement Procedures Act "RESPA". Administrative Proceeding File No. 2014-CFPB-0006 "In the Matter of Stonebridge Title Services, Inc." The CFPB reviewed the business practices of Stonebridge Title Services, Inc. of Parsippany, New Jersey and its two owners Bruce Dostal and Cesare Stefanelli operated the title agency to determine if Stonebridge Title was violating RESPA Section 8(a) "illegal kickbacks" and 8(b) "unearned fees". Stonebridge Title is an appointed title agent for several national title insurance underwriters who paid referral commissions of up to 40% of the title insurance premiums they received from consumers to Independent Salespeople for the referral of title insurance work to Stonebridge Title.

The CFPB stated the Independent Salespeople had or developed relationships with entities, typically law firms, and referred these entities to Stonebridge for title insurance and related services on behalf of consumers. The commission agreements Stonebridge utilized with the Independent Salespeople were structured in a way that commissions were paid on each title order placed by a firm that the Independent Sales person referred to Stonebridge. The commission payment amounts for title insurance orders were determined solely based on the value of the title insurance premiums multiplied by a previously agreed-to commission percentage according to the CFPB consent order.

The Independent Salespeople did not perform any title services for the consumers who paid the title insurance premiums to Stonebridge. The Independent Salespeople did not provide any non-referral services for Stonebridge for which they were to receive compensation according to the order.

The CFPB found Stonebridge guilty of violating Section 8(a) and 8(b) of RESPA.

One area we will focus more attention to in this consent order is page 5 section 17 which states "Although the Independent Salespeople received Form W-2s during this period of time, they were not "employees" covered by 12 CFR 1024.14(g)(1)(vii). Rather, they acted as independent contractors, and Stonebridge did not have the right or power to control the manner and means by which the Independent Salespeople performed their duties."

The CFPB noted in the consent order that in assessing the penalties against Stonebridge Title and its owners in this case that the amount was lower than it should have been but this is due to their belief that Stonebridge Title may now be financially insolvent. The CFPB ordered them to only pay $30,000.00 in this action but more importantly this consent decree solidifies the stance the CFPB has publicly touted that they will force companies out of business financially if they don't adhere to the rules. The language in the consent order insinuates that Stonebridge Title was financially shut down due to the bureau's enforcement action.

For more information about this consent decree or if your company is operating in this manner please contact the Sterbcow Law Group.

May 28, 2014

RESPA: CFPB ANNOUNCES AFFILIATED BUSINESS CONSENT ORDER WITH REALTYSOUTH IN ALABAMA

The Consumer Financial Protection Bureau "CFPB" announced another enforcement action today against JRHBW Realty, Inc. d/b/a RealtySouth and TitleSouth, LLC (both HomeServices of America companies) for violating Section 8 Real Estate Settlement Procedures Act , 12 U.S.C. §2607, and its implementing regulation, 12 C.F.R. Part 1024 (formerly codified at 24 C.F.R. Part 3500)(collectively, RESPA).

Administrative Proceeding File No. 2014-CFPB-0005 "In the Matter of JRHBW Realty, Inc., doing business as RealtySouth; TitleSouth LLC found that RealtySouth used illegal Affiliated Business Disclosure Statements and inserted language in the RealtySouth purchase agreements which mandated the use of TitleSouth both of which violate RESPA.

RealtySouth is a real estate brokerage company operating in the state of Alabama who also owns another company, TitleSouth LLC, which provides title closing services in Alabama. The CFPB made note in the consent order that the President of TitleSouth also is the General Counsel of RealtySouth.

RealtySouth and TitleSouth were order to pay a fine of $500,000 to the CFPB and faced additional requirements as identified below. It should be noted that this isn't RealtySouth's first experience with RESPA as it was involved in the infamous RESPA class action case: Vicki V. Busby versus JRHBW Realty, Inc. d/b/a Realty South involving administrative brokerage fees.

Continue reading "RESPA: CFPB ANNOUNCES AFFILIATED BUSINESS CONSENT ORDER WITH REALTYSOUTH IN ALABAMA" »

April 28, 2014

FEDERAL COURT SAYS OVERNIGHT DELIVERY FEES ARE SETTLEMENT SERVICES

A RESPA class action lawsuit filed in the U.S. District Court for the Central District of California ruled that overnight delivery fees constituted settlement services under the Real Estate Settlement and Procedures Act "RESPA". The case Henson v. Fidelity National Financial Inc., 2014 WL 1246222 (C.D. Cal. March 21, 2014) alleges that Fidelity has agreements with various overnight delivery companies (i.e. UPS, Federal Express, and OnTrac) which violate RESPA when Fidelity receives "marketing" fees in exchange for referring overnight delivery business to the overnight carriers through Fidelity's escrow subsidiaries.

The lawsuit states that Fidelity is the controlling parent of various escrow subsidiaries and these escrow subsidiaries use UPS, Federal Express, and OnTrac (the "delivery companies") to handle overnight deliveries in connection with processing and closing federally related mortgage loans. Fidelities subsidiaries then charge escrow customers for these delivery services in the customers real estate transactions. The lawsuit alleges that Fidelity has separate, written "master" agreements with each of the delivery companies through a subsidiary of Fidelity called EC Purchasing in which EC receives a split of the charges received by the delivery carriers and kickbacks in exchange for referring delivery services to the overnight delivery companies.

The lawsuit also states that because Fidelity exercises substantial control over their subsidiaries that no "marketing" services were actually performed nor did Fidelity put in place mechanisms to ensure they were performed under the master agreement. The payments were alleged to be based on the volume of business referred. The defendants argued that overnight delivery fees or express services were not in the real estate business and thus RESPA and Regulation X did not apply. The Court held that the term "settlement service" as used in Regulation X included overnight delivery services and stated the congress did not explicitly provide an exemption in RESPA for overnight delivery services and because Congress did not provide for an exemption neither should the Court.

The Sterbcow Law Group will continue to monitor this case as it develops.

February 10, 2014

RESPA: CFPB ISSUES CONSENT ORDER AGAINST MORTGAGE LENDER FOR ILLEGAL OFFICE SPACE LEASE AGREEMENT

The Consumer Financial Protection Bureau "CFPB" issued a Consent Order against Fidelity Mortgage Corporation "FFMC" and Mark Figert on January 16, 2014 for engaging in illegal business practices which violated Section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. §2607 "RESPA". The CFPB stated that Fidelity Financial Mortgage Corporation, which is based in St. Louis, Missouri, entered into a office-rental agreement with the Bank of Sullivan.

The CFPB described the illegal office space lease agreement between FFMC and Bank of Sullivan as a rental arrangement based the volume of successful mortgage transactions that FFMC would originate out of the Bank of Sullivan's office. The parties discussed anticipated loan volume and a pipeline of referrals under this office space rental agreement. The parties negotiated a daily rental rate of $200.00 and the lease agreement contained an exclusivity clause which required the Bank of Sullivan to only promote FFMC and FFMC could only promote the Bank of Sullivan.

The office space consisted of an interior office surrounded by bank personnel. FFMC also did not exclusively use the bank's office to meet bank related borrowers. The CFPB stated that FFMC met Bank of Sullivan borrowers at a variety of locations, including coffee shops. The office rental agreement between March 2012 and November of 2012 showed that Fidelity had originated approximately 20 loans resulting an average monthly rental amount of $1,350.00 per month. The monthly office space rental amount fluctuated each month (from $800 to $2000 per month). The CFPB conducted a investigation into what the prevailing monthly rental rate was in the market place for office of similar stature and the found a monthly amount ranging from $600 to $900 a month which was substantially lower than the average monthly amount Fidelity had paid the Bank of Sullivan under this office space rental agreement. The rental agreement the CFPB violated RESPA Section 8(a) which prohibits giving a fee, kickback or thing of value in exchange for a referral of business related to a real estate settlement service.

The CFPB also pointed out that HUD's 1996 Statement of Policy which analyzed and discussed office rental agreements was used to help determine whether this rental agreement was a disguised referral fee. The Consumer Financial Protection Bureau concluded that an above market rent was a disguised referral fee because the general market value of the property, not the value of the property to a settlement service provider was the definitive method of calculating whether RESPA was violated or not. HUD defined "general market value" as 'the rent that a non-settlement service provider would pay for the same amount of space and services in the same or a comparable building."

If you have an existing office rental lease you are using or you are contemplating entering into a office space rental agreement please contact us so the Sterbcow Law Group can guide you through any RESPA regulatory hurdles.

January 31, 2014

RESPA: FEDERAL COURT CERTIFIES MARKETING AGREEMENT CLASS ACTION

The United States District Court for the District of Maryland, Northern Division certified a Real Estate Settlement Procedures Act "RESPA" class action lawsuit on Tuesday, Jan. 28, 2014 involving marketing agreements between a "Team" of real estate agents "and Lakeview Title Company, Inc. The Creig Northrop Team, PC (a/k/a The Northrop Team) is a team of independent contractor real estate agents who work for Long & Foster Real Estate, Inc.. The class action lawsuit arises out of an alleged scheme for a team of real estate agents to receive over half million dollars in illegal kickbacks from a title insurance company for referrals over a period of 13 years.

Patrick Baehr, et al., v. The Creig Northrop Team, P.C., et al. (Civil No: 1:2013cv00933). Judge William D. Quarles is the presiding judge in this case.

The allegations specifically state that the defendants "used a 'sham employment arrangement and a sham marketing agreement' 'to generate unearned fees and kickbacks.'" The employment agreement allegation involves Carla Northrop who was a full-time employee of the Northrop Team but secretly received payments from Lakeview Title under an employment agreement, even though Ms. Northrop allegedly did not perform any services or actual work for Lakeview Title nor was she provided an office, telephone number, or email address showing she was working for Lakeview Title. The employment agreement was not disclosed to the plaintiffs in this case. These allegations if proven would likely violate 12 U.S.C. §2607 of RESPA which is the prohibition against kickbacks and unearned fees section.

The Marketing Agreement allegation states that Lakeview Title began funneling illegal kickbacks through a sham Marketing Agreement or Marketing Services Agreement with Creig Northrup and The Northrop Team. The Marketing Agreement stated that Creig Northop and The Northrop Team would designate Lakeview Title as their "exclusive settlement and title company" and would "provide mostly unspecified marketing services." The Marketing Agreement it is alleged also contained language that prohibited the endorsement of other title companies. The marketing agreement was originally $6,000 a month for marketing services but according to the complaint Lakeview Title paid as much as $12,000 per month to The Northrop Team. The court states that there is "no record of 'any real joint marketing services reasonably related to actual amounts paid by Lakeview Title. These allegations if proven true would also violate 12 USC §2607 of RESPA.

The court also stated that because the Plaintiffs did not discover their claim until March 16, 2013, after the statute of limitation had run, that the plaintiffs had sufficiently pled their entitlement to equitable tolling.

The certification of this RESPA class action lawsuit is significant for any company who has a Marketing Agreement with individual agents or Teams of agents. If you have a Marketing Agreement with real estate agents individually or with teams of real estate agents you should seek legal counsel immediately.