Posted On: April 30, 2009


The Real Estate Settlement Procedures Act's (RESPA) Section 9 (12 U.S.C. §2608) and Regulation X (§ 3500.16) prohibits, either directly or indirectly, a seller from requiring a purchaser to buy title insurance from a specific title company in any transaction as a condition of the sale.

Section 9 of RESPA (12 U.S.C. §2608) states that:
1. No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.

2. Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.

The only way a Seller can mandate that purchaser use a particular title company is if the seller paid 100% of all title insurance and related title costs. HUD's RESPA Division has stated on numerous occasions that unless the seller pays 100% of the title related costs then the seller has violated RESPA. REO companies need to pay particular attention to Section 9 because required use practices by REO companies are on the HUD's radar right now.

Additionally there are several local real estate purchase agreements that are in use in parts of the United States where the language in the purchase contract states that Seller picks the title company but purchaser pays for title costs. It should be clearly noted that you can not contract out of a RESPA Section 9 violation. Just because the purchase agreement is signed by the borrower doesn't prohibit the borrower from coming back and suing the seller for required use if the borrower is stuck with any of the title related fees.

Lastly another clever technique that is in use is where the seller says they will pay for the owner's title insurance policy but that purchaser has to pay for the lender's title insurance policy and all other costs. This does not pass the smell test nor does it pass HUD's smell test. The practice while novel in its approach is still considered a Section 9 violation. If you are a borrower has been a victim of this technique within the last year please give our firm a call.


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Posted On: April 28, 2009


The Financial Services Committee for the House of Representatives voted to suspend the implementation of the new Good Faith Estimate (GFE) and Housing and Urban Development (HUD-1) Settlement Statement. The committee voted to amend the Mortgage Reform and Anti-Predatory Lending Act (H.R. 1728) because the Federal Reserve Board is coming out with a new Truth-in-Lending Act (TILA) disclosure. Many in the industry are concerned that the new TILA disclosure will not integrate properly with the new HUD-1 and GFE. The bill will soon go to the full House and the Senate has its own version it will be pushing. So it looks like the new GFE and HUD-1 will have to wait until the TILA is finalized by the Federal Reserve Board.

The Real Estate Services Providers Council, Inc. (RESPRO) has more information on the House committee action.

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Posted On: April 25, 2009


U.S. District Court for the Northern District of Alabama's Southern Division handed down a decision on April 20, 2009 in the Vicki V. Busby v. JRHBW Realty, Inc. d/b/a RealtySouth case. The case centered on Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) and whether Administrative Brokerage Commissions (ABC Fees) are illegal.

United States District Judge Virginia Emerson Hopkins ruled the ABC Fees that RealtySouth charged consumers in a residential real estate transaction involving a federally related mortgage was nothing more than an unearned fee because the ABC fee would not be linked to a bona-fide settlement service that RealtySouth performed in the transaction.

The Birmingham News "Homebuyers were unfairly charged fee, federal court in Birmingham rules" by Russell Hubbard broke the story.

Section 8(b) of RESPA clearly states that no fee may be charged for the rendering of a real estate settlement service other than for settlement services actually performed.

RealtySouth charged a $149.00 Administrative Brokerage Fee since 2003 on over 30,000 real estate transactions in the state of Alabama. The defense was dealt a significant blow when two RealtySouth executives testified in their depositions that the ABC fees they charged did not go any particular settlement service but rather was implemented to increase revenues for the brokerage only. They further testified that the consumers did not get any benefit from the ABC fee. The testimony from the RealtySouth executives damaged RealtySouth to point where the defense didn't have any real hope of winning in this case.

If RealtySouth had charged the consumers a fee that was based on some benefit (i.e. technology closing platform to store all their documents) and labeled attached an appropriate label to that bona-fide fee then I believe the verdict would have been different. The wholesale blanket of charging ABC fees "where no service has been provided to the consumer" should be curtailed by any real estate brokerage or in some cases real estate agents themselves from charging such a fee.

The bottom line is that real estate brokerages need to make sure if they charge consumers an additional fee separate and apart from the real estate commission that the fee is reasonable, verified, service is provided, and most importantly the fee provides some benefit to the consumer.

The damages against RealtySouth could exceed $13.5 million dollars (treble damages on $149.00 with potentially 30,000 borrowers) plus the plaintiffs attorneys fees and costs in the civil action. If HUD's RESPA division sanctions RealtySouth as well the price tag could go up even further because Section 8 under RESPA also has criminal penalties.

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Posted On: April 18, 2009

Home Valuation Code of Conduct (HVCC) rules go into effect on May 1, 2009

Freelance reporter Marcie Geffner for had a story picked up by the Seattle Times' titled "New appraisal rules may hurt home buyers" with respect to the Home Valuation Code of Conduct (HVCC) which goes into effect on May 1, 2009. The rule which takes effect on all Freddie Mac and Fannie Mae loans is highly controversial in the real estate industry.

The appraisal industry could see an increase in the number of national Appraisal Management Companies at the expense of the independent appraisal company. The concern that many in the real estate industry have towards the HVCC is the potential ramification that a national appraisal management company will not understand a local real estate market. The lack of local appraisers in a particular real estate market could further depress home prices because the fear is that a national appraisal management company would create a home valuation process that is determined by Freddie Mac or Fannie Mae not by what the true value of the immovable property actually is.

As to how this relates to the Real Estate Settlement Procedures Act (RESPA), many appraisal management companies are owned by lenders or other settlement service providers. Lenders & title insurance underwriters can own appraisal management companies so long they disclose their ownership relationship within twenty four (24 hours) of the referral and their use is not required. Many are under the impression that lenders or other settlement service providers are forbidden from owning their own appraisal management company but that is inaccurate as this practice is completely legal under RESPA.

The full impact of the HVCC remains to be seen but the entire issue could be moot once the Federal Deposit Insurance Corporation's "Interagency Appraisal Evaluation Guidelines" go into effect. The IAEG might trump the HVCC.

Consumers and state & federal regulators need to watch very carefully to see what impact the new HVCC rules will have on the real estate home buying and refinancing process. If the national appraisal management companies misinterpret home values then this will not only have a serious impact on the home buying process but it also could seriously jeopardize taxing bodies who rely on property values to run government.

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