RESPA Lawyer Blog

The Heather Q. Bolinger, et al v. First Multiple Listing Service, Inc., et al (Case 2:10-cv-00211-RWS) which is being litigated in the United States District Court for the Northern District of Georgia Gainesville Division survived the Defendant's Motion to Dismiss the case on January 18, 2012.

The lawsuit contends the federal Real Estate Settlement Practices Act (“RESPA”) requires full disclosure of all fees and charges in real estate closings involving a federal mortgage loan. RESPA also prohibits unearned fees or kickbacks designed to encourage the referral of business by settlement service providers, such as First Multiple Listing Service ("FMLS") and its member real estate brokers. One of the principal purposes of these RESPA provisions is to lower the cost of real estate closings to consumers by eliminating secret, disguised, and inflated charges.

The Bolinger et al. class action lawsuit alleges that:

1. Members of FMLS, which include virtually every residential real estate broker and agent in North Georgia, are required to list with FMLS all properties for sale and to pay undisclosed, unearned transaction fees to FMLS after closing and all services are rendered. Consumers either pay these fees directly or through inflated commissions.

2. Real Estate Brokers receive a kickback of all or substantially all of those fees from FMLS, and share in transaction fees paid on other closings. The suit further contends that these unearned hidden settlement fees and kickbacks are funded by real estate commissions paid by consumers. The hidden transaction settlement fee is $1.20 per thousand dollars of the selling price (i.e., .0012% of the sales price), and is doubled if the listing and selling agents work for different real estate brokers.

For example, the sale of a house for $200,000 with different listing and selling real estate agents would result in an undisclosed hidden transaction settlement fee of $480. In most transactions, the hidden settlement fee is not disclosed to the buyer or seller, either in the voluminous documents executed at closing or otherwise, and the kickbacks are never disclosed.

3. In addition to violating RESPA, these practices violate the Sherman Act, which is the core federal antitrust law. Notably, the “MLS Antitrust Compliance Policy” of the National Association of REALTORS® expressly prohibits basing MLS fees on a percentage of the sales price rather than the value of the services rendered [download NAR policy here]. Yet investigation for the lawsuit found not only that, as alleged, FMLS charges a per-transaction fee based on the sales price, and pays a kickback to brokers for utilizing its services, but that FMLS may be the only MLS in the country to do so. Further, the fees associated with FMLS are alleged to be higher than those charged by MLS’s elsewhere in Georgia and around the country.

Taylor English Duma LLP, a law firm with offices in Atlanta and Savannah, Pope, McGlamry, Kilpatrick, Morrison & Norwood, LLP, a Georgia law firm with offices in Atlanta and Columbus, and the New Orleans based Sterbcow Law Group LLC have filed a lawsuit on behalf of buyers and sellers of residential real estate in metro Atlanta and North Georgia against First Multiple Listing Service, Inc. (“FMLS”), its member real estate brokers, the agents who handled the transactions of the named plaintiffs, and three boards of REALTORS®, alleging a longstanding practice of FMLS and its members in charging buyers and sellers unearned hidden transaction fees in connection with residential real estate closings in violation of federal and state law. FMLS is a multiple listing service (“MLS”) that provides an electronic database for listing residential real estate for sale. It is the largest MLS in metro Atlanta and North Georgia.

For more information please visit the FMLS CLASS ACTION WEBSITE.

Continue reading "RESPA CLASS ACTION SURVIVES MOTION TO DISMISS RESPA CLAIMS IN ATLANTA" »

H.R. 2446 known as the "RESPA Home Warranty Clarification Act of 2011" passed The Insurance, Housing, and Community Opportunity Subcommittee last week. US Congresswoman Judy Biggert sponsored the bill and is the Chairman of the subcommittee. The RESPA Home Warranty Clarification Act as currently written by Rep. Biggert seeks to clarify the scope of RESPA by exempting home warranty companies as settlement service providers and would require that consumers are given clear notice that their real estate agent could receive a referral fee for selling them a home warranty. According to Rep. Biggert, Home warranties should not be subjected to these RESPA regulations because the sale of home warranties is outside the scope of RESPA.

Rep. Biggert seeks to overturn the Department of Housing and Urban Development's Interpretive Rule which stated that a "homeowner's warranty is covered as a "settlement service" under HUD's RESPA regulations at 24 CFR 3500.2 it issued on June 25, 2010.

Continue reading "RESPA: H.R. 2446 RESPA HOME WARRANTY CLARIFICATION ACT OF 2011" »

The Consumer Financial Protection Bureau "CFPB" announced plans today to implement an early warning enforcement action plan ("the Early Warning Notice") which would allow those under investigation the ability to respond to the CFPB. The CFPB Bulletin 2011-04 (Enforcement) announced the first in a series of periodic bulletins the CFPB will release which are aimed at providing information about the policies and priorities of the CFBP's Bureau of Enforcement.

"Before the Office of Enforcement recommends that the Bureau commence enforcement proceedings, the Office of Enforcement may give the subject of such recommendation notice of the nature of the subject's potential violations and may offer the subject the opportunity to submit a written statement in response. The decision whether to give such notice is discretionary, and a notice may not be appropriate in some situations, such as in cases of ongoing fraud or when the Office of Enforcement needs to act quickly."

It is important to note that if the subject(s) of an investigation is asked to provide the Bureau of Enforcement a response statement and the subject prepares and submits the response statement under oath to the Bureau the response may be discoverable by third parties.

The Early Warning Notice also allows any person involved in an investigation to voluntarily submit a written statement at any point during an investigation.

Continue reading "CONSUMER FINANCIAL PROTECTION BUREAU: "THE EARLY WARNING NOTICE" PROCEDURE ANNOUNCED FOR ENFORCEMENT ACTION" »

The United States Supreme Court announced that it would finally resolve the issue of whether the Real Estate Settlement Procedures Act ("RESPA") under Section 8(B) prohibits one settlement service provider from charging consumers a fee for settlement service work the provider did not perform or whether an unearned fee must be split by two or more providers in order for the service fee to be deemed illegal.

Section 8(B) of RESPA states:
"No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." 12 U.S.C. 2607(b)

The Supreme Court granted certiorari in the Freeman v. Quicken Loans case because not only have the district courts been divided on the issue but the appellate courts have been divided as well. The Freeman case is lawsuit that was heard in the 5th Circuit out of New Orleans. The 5th Circuit said Quicken's charges for loan discount fees and a loan processing fee were not prohibited by RESPA Section 8(B), 12 U.S.C. 2607(b) even though the fees the consumer paid did not go towards lowering their interest rate nor could Quicken show where they performed any work in connection with their charges.

The 5th Circuit Court of Appeals agreed with the 5th Circuit District Court Judge Carl Barbier and ruled in favor of Quicken Loan. The Obama Administration pushed the US Supreme Court to hear this issue because they side with the plaintiff's position in this case. Currently the 4th, 5th, 7th, and 8th Circuits have held that RESPA Section 8 is exclusively an anti-kickback statute and under Section 8(b) that two or more parties are required in order to have a Section 8(b) violation. The 2nd, 3rd, and 11th Circuits rejected the two or more party requirement and have held that RESPA Section 8(b) prohibits mark-ups where only one party is involved. The 2nd Circuit (Cohen v. JP Morgan) ruled that Section 8(b) prohibits one settlement service provider's from charging undivided unearned fees.

It is interesting to note that this is only the second RESPA case the Supreme Court has ever taken up and the first case is also being heard this session in the "Edwards v. First American" case. The oral arguments are scheduled sometime in January and the Supreme Court should rule sometime in June 2012.

Daniel Fisher of Forbes Magazine wrote an article today titled ""Sleeper" Case Asks Whether Plaintiffs Can Sue Without An Injury." Mr. Fisher's article highlights the Edwards v. First American case and discusses the positive impact a Supreme Court's ruling would have for corporations facing civil and class action lawsuits from consumers who might have a hard time showing actual injury in fact damages.

The Edwards case stems from a real estate settlement procedures act (RESPA) class action where the Edwards' were required to purchase a title insurance policy from First American. First American's actions allegedly violated Section 8(c)(2) of RESPA where the federal rules state that affiliated businesses can't require that borrowers use their affiliated businesses and the civil penalty for violating this rule is treble damages on all fees paid to First American plus attorney's fees.

The US Supreme Court is looking at standing to sue under Article 3 of the US Constitution in the Edwards case. "First American argues Edward suffered no harm and therefore has no standing to sue under Article III of the Constitution. Under Article III federal courts are limited to hearing “cases” or “controversies” and the Supreme Court has since decided that means somebody who has suffered actual harm or is in imminent danger of it."

Fisher's business article on Forbes.com explains how the future decision by the Supreme Court in the Edwards case would impact not only the financial services industry but the decision will have a major impact on the automobile industry among others. The ramifications of the Edwards decision by the US Supreme Court could certainly change the way businesses operate because the threat of civil litigation by consumers will be significantly curtailed. A ruling in favor of First American would also put more pressure on regulators to regulate compliance issues.

Reporter Avi Salzman with Barron's is reporting that Bank of America may file for bankruptcy protection for it's Countrywide subsidiary if litigation costs from Countrywide threaten Bank of America. Bank of America is the parent company of Countrywide but it is a separate legal entity. If Bank of America (NYSE: BAC) decides to declare bankruptcy it would only affect the Countrywide division not the entire company.

If Bank of America does file for bankruptcy protection for Countrywide it could have a material impact on on-going litigation involving RESPA, TILA, and other legal actions across the United States involving Countrywide. The purchase by Bank of America is widely viewed as one of the worst acquisition decisions in corporate American history.

Prospect Mortgage reached a settlement today with the U.S. Department of Housing and Urban Development (HUD) over Prospect's use of the Series Limited Liability Company "aka Series LLC" joint venture business model. The terms of the settlement are not yet available but we will update the Respa Lawyer Blog as soon as HUD releases that information.

This is the second major settlement enforcement action in the last two days by HUD's RESPA division which moves over to the Consumer Financial Protection Bureau on July 21, 2011. It is highly possible that other settlement actions may be announced by HUD prior to the July 21, 2011 due to stronger monetary penalties under the CFPB.

The United States Department of Housing and Urban Development "HUD" announced a settlement with Fidelity National Financial (NYSE: FNF) in the amount of $4.5 million dollars for HUD's contention that Fidelity violated the Real Estate Settlement Procedures Act "RESPA" when it paid real estate brokers and other settlement service providers illegal kickbacks and improper referral fees for referring business through an "Application Service Provider Agreement." The Application Service Provider Agreement provided real estate brokers and other settlement service providers with access to Fidelity's TransactionPoint closing software. TransactionPoint allowed real estate brokers and others to select real estate settlement service providers for a particular real estate transaction. The real estate brokerages would then enter into Sub-License Agreements with subsidiaries of Fidelity to enable Fidelity's subsidiaries to be listed in TransactionPoint as a provider of settlement services.

The settlement said Fidelity's subsidiaries would then in turn compensate the real estate brokerages a fee for each referral of real estate. Re-insider.com was the first to break this story and has extensive coverage on the topic for those who wish to learn more. It is important to note that HUD's Settlement Agreement only applies to Fidelity and not to the real estate brokerages who recieved the kickbacks and illegal referrals fees so it is possible that more settlements will be announced as it pertains to those companies who recieved the kickbacks and improper referral fees.

The settlement can be viewed by clicking this link: FIDELITY SECTION 8 RESPA SETTLEMENT

The United States Supreme Court granted First American Financial Corporation's Writ of Certiorari it filed in the Denise P. Edwards et al. v. First American Financial Corporation, et al. RESPA class action lawsuit today (June 20, 2011). The Supreme Court will now decide whether a plaintiff has standing to sue, on behalf of a nationwide class, when a plaintiff asserts that a real estate company violated the Real Estate Settlement Procedures Act of 1974 (RESPA) without showing the RESPA violation affected the services rendered.

The Edwards lawsuit accuses First American and others of operating an illegal kickback scheme which violated Section 8 of RESPA. The Supreme Court decision will focus strictly on Question 2 presented in the Writ of Certiorari. The issue presented in Question 2 is whether the a privte purchaser of real estate has standing to sue under Article III, Sec. 2 of the United States Constitution.

The case is First American Financial v. Edwards, 10-708.

Continue reading "BREAKING RESPA NEWS: UNITED STATES SUPREME COURT GRANTS WRIT OF CERTIORARI IN EDWARDS VS. FIRST AMERICAN'S RESPA CLASS ACTION LAWSUIT" »

The US Department of Housing and Urban Development's (HUD) Real Estate Settlement Procedures Act (RESPA) Division released its latest RESPA ROUNDUP newsletter (Volume 5, April 2011). The newsletter asks and answers one question each on HUD-1 Line 803 tolerance violations, credit report charges, what happens if a loan originator fails to issue a Good Faith Estimate "GFE", and clarifies 4506-T "Tax Transcript Fees" disclosure.

Question #1. HUD-1 Line 803 tolerance violation

"Does zero tolerance for HUD-1 Line 803 (see “adjusted origination charges”; 24 CFR § 3500.7(e)(1)(iii)) mean that loan originators must double the cure of a tolerance violation of Line 801 or Line 802 because each tolerance violation on those Lines also results in an increase in the Adjusted Origination Charge on Line 803?

No. Correcting a Line 801 or Line 802 tolerance violation will serve to correct a tolerance violation that stems from the calculation of Line 803.

Loan originators should carefully monitor their own charges to avoid tolerance violations. However, if the loan originator fails to correct Line 801, 802 or consequently Line 803 tolerance violations before settlement, the loan originator can effectuate a cure within 30 days by listing and describing a credit in either the 200 Series on Page 1 or in a blank line in the 800 Series on Page 2. Whether the cure is shown in the 200 Series or 800 Series, the settlement agent should include a notation of P.O.C.(lender), to indicate that the lender has made a payment of a specified amount to correct a potential tolerance violation.

Whether the cure is shown in the 200 Series on Page 1 or the 800 Series on Page 2, a cure to correct a tolerance violation on Lines 801 and/or 802 will serve to correct the tolerance violation on Line 803.

After the revised HUD-1 has been prepared by the settlement agent, the settlement agent must provide the revised HUD-1 to the borrower and lender, and, as appropriate, to the seller."

Question #2. Credit Report Charges

"The regulations provide that the only charge that a loan originator may impose on a potential borrower before issuing a GFE is a charge limited to the cost of a credit report (see 24 CFR §§ 3500.7(a)(4) and (b)(4) “…the [loan originator] may, at its option, charge a fee limited to the cost of a credit report”). Only after a loan applicant both receives a GFE and indicates an intention to proceed with the loan covered by the GFE may the loan originator collect fees beyond the cost of a credit report.

For example, if the loan originator’s cost for a credit report is an $8.75 charge from a third party, the total amount that the loan originator can charge the borrower before the GFE is issued is $8.75. In this case, the actual charge of the credit report listed on Line 805 of the HUD-1 is $8.75.

Alternatively, pursuant to 24 CFR § 3500.8(b)(2), the loan originator’s cost for a credit report may also be calculated, charged, and disclosed on the GFE and HUD-1 as an average charge, as long as all of the requirements in 24 CFR § 3500.8(b)(2) are met. This section provides, in part: “The average charge for a settlement service shall be no more than the average amount paid for a settlement service by one settlement service provider to another settlement service provider on behalf of borrowers and sellers for a particular class of transactions involving federally related mortgage loans….”"

Question #2: What if the Loan Originator fails to issue a Good Faith Estimate "GFE"?

If a loan originator fails to deliver a GFE in clear violation of 24 CFR § 3500.7(a) and (b), the loan originator will have significant potential tolerance violations at settlement. See RESPA § 3500.7(e).

Where the loan originator has not provided the consumer with a GFE, when completing the HUD-1 comparison chart the loan originator’s instructions to the settlement agent must indicate that the settlement agent must fill in the GFE columns with $0 and the HUD-1 columns with the actual charges from Page 2 of the HUD-1. If this results in one or more tolerance violations, the loan originator may cure the tolerance violation(s) by reimbursing the borrower the amount by which the tolerance was exceeded at settlement or within 30 calendar days after settlement.

As with other compliance areas, loan originators should adopt policies and procedures to ensure that GFEs are delivered timely, in accordance with the requirements of RESPA.

Question #4: 4506-T "Tax Transcript Fees"

The fee for obtaining a tax transcript using IRS Form 4506-T, “Request for Transcript of Tax Return” is an administrative charge that is part of processing and underwriting that should be disclosed as part of Block 1, “Our Origination Charge,” on the GFE regardless of whether the charge is paid to a third party or directly to the IRS.

Continue reading "RESPA: NEW RESPA ROUNDUP QUESTIONS AND ANSWERS RELEASED BY HUD" »

On March 9, 2011, Saul Ewing, LLP; Herman, Herman, Katz & Cotlar, and Sterbcow Law Group LLC, filed a lawsuit on behalf of the National Association of Mortgage Brokers (NAMB) against the Board of Governors Of The Federal Reserve System; Honorable Ben S. Bernanke, Chairman of the Board of Governors of the Federal Reserve System; and Sandra F. Braunstein, Director,Division of Consumer Affairs, Board of Governors of the Federal Reserve System, seeking temporary and preliminary restraints to delay the April 1, 2011 implementation of the loan originator compensation rule under the Truth-in-Lending Act.

The lawsuit, (Case 1:11-cv-00506-RLW) filed in the U.S. District Court for the District of Columbia, is based on the rule prohibiting mortgage brokers from paying their loan officers commissions from fees paid by the consumer, which will cause irreparable harm to small businesses. NAMB is seeking the Federal Reserve Board to avoid the effects of its rule by withdrawing this section of the rule and allowing the Consumer Financial Protection Board to perform its mandated responsibilities in this area.

Continue reading "STERBCOW LAW GROUP FILES LAWSUIT ON BEHALF OF THE NATIONAL ASSOCIATION OF MORTGAGE BROKERS "NAMB" AGAINST THE FEDERAL RESERVE SYSTEM ON LOAN OFFICER COMPENSATION RULE " »

The 6th Circuit Court of Appeals in Cincinnati, Ohio approved a motion by the United States Attorney General allowing it to intervene on behalf of the plaintiffs in a RESPA class action lawsuit involving kickbacks. The Federal 6th Circuit Court of Appeal will hear the case in early Spring.

The United States Department of Treasury has hired Richard Cordray to lead the Enforcement Division of the Consumer Financial Protection Bureau (CFPB) which was created under the Dodd-Frank Bill. Richard Cordray was elected as the Ohio Attorney General in 2008. Cordray has filed numerous lawsuits during his tenure as the Ohio Attorney General, most notably against AIG, Marsh & McLennan, Bank of America, and Merrill Lynch which resulted in more than 2.5 billion dollars in settlements.

Given Cordray's history it appears that he will be focusing on federal preemption of nationally chartered banks and the problems state regulators have had with their inability to enforce laws. The doctrine of preemption was used by the Office of Comptroller of the Currency as a way to stop states from enforcing rules and regulations against nationally chartered banks. He has pledged to jointly work with state attorney generals while at the CFPB in his investigations which could significantly hamper nationally chartered banks argument of federal preemption against state laws. Cordray and The American Bankers Association have opposing stances on the bank preemption issue. The underlying premise is that nationally chartered banks who engage in abusive and fraudulent tactics better be prepared for an onslaught of litigation and penalties when the enforcement team starts working with the states.

Richard Cordray's reputation is that of a staunch advocate for consumer rights against financial services companies who break the law. Cordray is responsible for selecting the enforcement team and preparing for the exercise of enforcement powers. RESPA enforcement under Cordray appears to be a priority based on his past history and Section 6 of RESPA is a prime target for future regulatory enforcement action by the CFPB.

On November 23, 2010, the Office of General Counsel's Helen Kanovsky with the Department of Housing and Urban Development "HUD" responded to public comments HUD received on the "Home Warranty Companies' Payments to Real Estate Brokers and Agents" Interpretive Rule it published on June 25, 2010. HUD's response was very clear that the interpretive RESPA rule they issued in June did not need to be changed. However, HUD did provide some clarification to the public by providing additional guidance relating to matters covered in the interpretive rule and from the public's comments. HUD's answered seven questions as listed below:

Continue reading "REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): HUD ISSUES RESPONSE TO PUBLIC COMMENTS ON HOME WARRANTY COMPANY PAYMENTS TO REAL ESTATE AGENTS AND BROKERS" »

The National Association of Realtors (NAR) and the Department of Housing and Urban Development (HUD) collaborated to produce a series of videos on YouTube.com which are geared at educating future home buyers on the real estate buying process. The joint effort was unveiled at the National Association of Realtors 2010 National Conference in New Orleans last week.

The first 10 minute video "Shopping for your home" features HUD associate deputy assistant secretary Teresa Baker Payne explaining the home buying process.

The second 12 minute video "Shopping for your loan" features HUD deputy assistant secretary for FHA Vicki Bott explaining what home buyers need to look for when shopping for their mortgage loan and includes a consumer friendly approach to the Good Faith Estimate "GFE."

The third 10 minute video "Closing the Deal" features Teresa Baker Payne explaining the actual closing process and what areas on the Good Faith Estimate and RESPA HUD-1 Settlement Statement home buyers needs to look at when they receive their closing documentation.

This is an excellent series of videos because not only does this help consumers but it also will help educate those in the real estate industry as well. This is probably the best consumer educational initiative HUD has put together in years.

The Sterbcow Law Group's Marx Sterbcow and Charles Cain will be presenting "The Next Regulatory Tidal Wave -- New Regulation Z Rules" on Friday, October 15, 2010 at 2:30 - 3:45 at the American Land Title Association's (ALTA) Annual Conference in San Diego, California.

The presentation will focus on how "the closing process has been dramatically impacted lately by MDIA in 2009, then RESPA changes in 2010 and now Reg Z changes are set to take effect in 2011. Because of these regulations software changes will be needed and closing time frames will need to be adjusted. This session will introduce title professionals to the basics of the new rules and the potential impact upon their businesses. Among the topics discussed will be how will the new rules directly affect the closing process including documentation, what new calendars the rules will create, and how the new rules conflict or contrast with MDIA, the RESPA changes and other existing laws."

Click here more information about the ALTA Annual Conference.

US House Representative Maxine Waters and Rep. Albio Sires introduced a bill called the "Home Equity Protection Act of 2010" on Wednesday. The bill seeks to amend the Real Estate Settlement Procedures Act "RESPA" by prohibiting the collection of private transfer fees, also known as capital recovery fees or resale fees.

Often a housing or condominium developer establishes a legal covenant which requires the purchaser of a home in a large subdivision or condominium to pay a private transfer fee back to the developer or are allocated to the homeowners or condominium associations maintenance funds when they sell their home. The fees sometimes are often around one (1) percent of the sales price and the private transfer fee can often last as long as 99 years.

The private transfer fees have been controversial because some home buyers have claimed they were unaware of the restriction and in some cases the covenant doesn't require the homeowners signature at all. The proponents of making the private transfer fees illegal believe the fee strips the homeowners of their equity when they sell their property. Those in favor of keeping the private transfer fees intact believe it helps keep condominium and homeowners associations afloat by giving them needed capital to operate.

The Federal Housing Finance Agency proposed a similar rule which could prohibit Fannie Mae and Freddie Mac from insuring or purchasing mortgages that include private transfer fees. Several trade associations, including the National Association of Realtors and American Land Title Association, have applauded the legislation and are in favor of banning the private transfer fees.

The Consumer Financial Protection Bureau which will oversee the Real Estate Settlement Procedures Act (RESPA) now has a decision maker to help set up the CFPB. President Obama announced today the appointment of Harvard Professor Elizabeth Warren to implement policies and procedures to protect consumers from financial products. Ms. Warren who is widely known as the person who developed the idea for the CFPB will also be responsible for helping select a director to head up the CFPB.

Warren is considered a strong consumer advocate and her ideology has some in the financial services industry concerned. The concern reached a fevered pitch over the last two months with Republicans and the financial services industry pledged to hold up her confirmation in the Senate. Obama's move of not appointed her to the CFBP but rather giving Warren supervisory authority of the CFPB without going through a senate confirmation process stunned her critics.

It remains to be seen how Warren will tackle the enforcement of RESPA in the near future but I suspect that we will see a huge increase in both funding and manpower in the RESPA enforcement arena.

The Federal Reserve Board issued an interim proposed rule today, August 16, 2010, that revises the disclosure requirements for closed-end mortgages under Regulation Z (Reg Z) of the Truth In Lending Act (TILA). The Fed said the proposed rule implements provisions of the Mortgage Disclosure Improvement Act (MDIA) which require lenders to disclose how loan borrower's regular mortgage payments can change over time.

The Fed's notice can be accessed by clicking here:
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100816b1.pdf

Continue reading "REGULATION Z (TRUTH IN LENDING) DISCLOSURE REQUIREMENTS FOR CLOSED-END MORTGAGE LOANS ANNOUNCED" »

The Office of RESPA and Interstate Land Sales has released a new communications article aimed at consumers and the real estate industry called "RESPA ROUNDUP." The RESPA Roundup is aimed at providing more information on issues where HUD believes more clarification is needed. The first volume focuses on the new Home Warranty interpretive rule and questions on the Good Faith Estimate.

The Department of Housing and Urban Development (HUD) issued an interpretive rule on June 26, 2010 in the Federal Register on the issue of how home warranty companies can pay real estate agents and real estate brokers under the Real Estate Settlement Procedures Act (RESPA) without violating Section 8(a) and 8(b).

The interpretive rule was released in response to a Feb. 21, 2008 unofficial staff interpretation letter that Paul Ceja of HUD's Office of General Counsel issued that caused a great deal of confusion in the real estate industry. Since the letter was issued The National Association of Realtors (NAR), Real Estate Settlement Providers Council (RESPRO), National Home Service Contract Association (NHSC), and others pressed HUD to clarify the rule on the subject of home warranty compensation.

HUD's new clarification breaks down the issue into three distinct categories:

1. Unlawful Compensation for Referrals: RESPA does not prohibit a real estate broker or real estate agent from referring business to a home warranty company. But RESPA does prohibit a real estate broker or agent from receiving a fee for merely referring or "marketing" a buyer or seller to purchase an insurance policy from the home warranty company. A referral by itself is not a compensable service for which compensation can be given and would be a violation of Section 8(a) illegal kickback and Section 8(b) unearned fees under RESPA.

2. Bona Fide Compensation for Service Provided: HUD's RESPA guidance rule says that Section 8(c) allows payment of bona fide compensation for services actually performed. HUD said that depending on the facts of a particular case (based on a case-by-case determination), a home warranty company may compensate a real estate broker or agent for services when those services are actual, necessary, and distinct from the primary services provided by the real estate broker or agent and those additional services must not be nominal or duplicative. An example would be a real estate agent filling out all the information required to issue a home warranty policy and submitting the policy to the home warranty company.

3. Reasonableness of Compensation: Lastly, HUD said they want to assess whether the value of the payment by the home warranty company is reasonably related to the value of the services actually performed by the real estate agent or broker and not just compensation for the mere referral of business. The compensation from the Home Warranty Company to the real estate agent must be based on the fair market value of the services performed in the area where real estate agent operates. For example if the fair market value is $200 dollars in New York but in Missoula the fair market value is $60 to fill out the home warranty application, fill in the registration codes for various appliances, and do some other functions then the real estate agent in Missoula should recieve $60 dollars for that work not $200 if that is the going rate in New York. HUD appears to have taken the position that charging $200 in Des Moine when the fair market value is $60 is unreasonable compensation.

The RESPA interpretive rule raises a large legal question on the issue of whether this rule expands the definition of who a settlement service provider is. Lenders do not typically require a home warranty policy to be purchased by a buyer (or seller) as a condition in securing a federally related residential loan. The result has been that in many jurisdictions across the United States the home warranty policy is paid outside of closing and not listed on the HUD-1.

The question we need clarification on is whether RESPA believes that all home warranty policies issued on the purchase of a home where a federally related mortgage is involved be listed on the HUD-1. If that is not the case does this interpretive rule extend to companies that traditionally were not considered settlement service providers (pest inspection companies, home repair companies, privacy protection companies, etc.) under the original definition?

Continue reading "REAL ESTATE SETTLEMENT PROCEDURES ACT: RESPA ISSUES INTERPRETIVE RULE ON HOME WARRANTY MARKETING AGREEMENTS" »

The United States Department of Housing and Urban Development is seeking public comments relating to Section 9: "Required Use" under RESPA. "The Real Estate Settlement Procedures Act (RESPA): Strengthening and Clarifying RESPA's "Required Use" Prohibition Advance Notice of Proposed Rule making" was made public on June, 3, 2010.

HUD appears to be concentrating on home builder owned title and mortgage companies where homebuilders offered construction upgrades or discounts to consumers if the home buyers used their ancillary title or mortgage company. The controversy centered around a few homebuilders who offered consumers free upgrades (i.e. bonus rooms, automobiles, or other extravincentives) if the consumer used the home builders affiliated mortgage or title company. The controversy escalated when some of these free upgrades exceeded tens of thousands of dollars. The cost to use another mortgage or title company did not make sense because the consumer would lose out on the extravagant free upgrade. Some consumers felt like they had to use the home builders affiliated business because the incentive was so excessive they had no choice but to use the homebuilders mortgage company.

The affiliated business model is encouraged by HUD when the consumer saves money but some some felt like the practice that a few homebuilders engaged in did not really save the consumers money on the mortgage side because they claim the interest rates were higher.

HUD appears to be looking at how to clarify the incentive language under "Required Use" so that the incentive offered actually benefits the consumer yet still allows the consumer to shop around.

The comment period ends on September 1, 2010.
All interested parties wishing to submit a comment should direct their comments to:
Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street, SW Room 10276, Washington, D.C. 20410-0500

Sylvia Hsieh with Lawyers USA recently interviewed several attorneys from across the United States on how the new Real Estate Settlement Procedures Act (RESPA) regulations have created confusion for both the real estate industry and for consumers. Hsieh's article "New Real Estate Settlment Procedure Act regs stir confusion, frustration" is a good article on how the rule is creating many challenges. For disclosure purposes she also interviewed Marx Sterbcow with the Sterbcow Law Group LLC for this article.

The U.S. Housing and Urban Development (HUD) made a number of surprising management changes last month including the shuffling of Ivy Jackson, the Director of the Office of RESPA and Interstate Land Sales to the Office of Insured Health Care Facilities. Ivy Jackson's departure took the real estate industry by surprise and created uncertainty for state regulators who were relying on her to educate them the new RESPA regulations this year.

The Sterbcow Law Group would like to thank Ivy Jackson for her contributions over the years at RESPA. She will always be remembered as a federal regulator who was fair to the real estate industry and to consumer interests while at RESPA. Ms. Jackson's work ethic, honesty, and experience will be missed.

HUD promoted Teresa Baker Payne to the position of Assistant Deputy Assistant Secretary and Barton Shapiro was named Acting Director of RESPA and Interstate Land Sales. Ms. Payne and Mr. Shapiro both bring experience to their new positions. Ms.Payne and Mr. Shapiro both are excellent choices for their respective roles at HUD.

Continue reading "RESPA: DEPUTY DIRECTOR IVY JACKSON IS SHUFFLED OUT OF RESPA DIVISION" »

The United States District Court for the Northern District of Ohio denied certifying a Real Estate Settlement Procedures Act "RESPA" class action lawsuit on March 11, 2010. The Carter v. Welles-Bowen Realty, Inc., case No. 3:05 CV 7427, consolidated No. 3:09 CV 400, 2010 WL 908464 (Northern District of Ohio) is a case where the plaintiffs asserted that Welles-Bowen Realty, Inc was engaged in operating illegal affiliated business arrangements (aka sham AfBAs) which is a violation of RESPA Section 8(a) and 8(b) (12. U.S.C. 2607 (a) and (b)).

Judge Jack Zouhary's reasoning for his latest denial of class certification in this RESPA lawsuit is controversial because he believes that class actions are not a proper method of litigating RESPA civil suits. Judge Zouhary's partially based his decision to deny class certification because it was his opinion that state and federal regulators should prosecute RESPA claims not class action litigation. The controversy surrounds the opinion because the Real Estate Settlement Procedures Act does allow for civil class action lawsuits. State and federal regulators routinely rely on class action lawsuits to help them in their investigations the loss of this informational stream may have an adverse impact on the consumers some believe if this ruling is universally adopted across the United States.

It should be noted that the Court was overruled once before in this case by the U.S. Court of Appeals for the Sixth Circuit on the issue of whether a RESPA class action requires a concrete financial injury in fact. The question is whether the plaintiffs will appeal this ruling or will they find another way to continue on but avoid this particular Court.

Continue reading "RESPA CLASS ACTION LITIGATION: CLASS ACTION CERTIFICATION DENIED IN CARTER V. WELLES-BOWEN REALTY, INC" »

The United States Court of Appeals for the 9th Circuit ruled in favor of Wells Fargo Home Mortgage Inc., WFC Holdings Corporation, Wells Fargo & Company, and Wells Fargo Financial Services Inc. on the issue of whether overcharging a settlement service fee to the consumer violates the real estate settlement procedures act (RESPA). The RESPA fee at issue was an $800.00 dollar "underwriting fee" which was charged to the borrowers in Martinez v. Wells Fargo

Continue reading "RESPA CLASS ACTION LAWSUIT DISMISSED ON OVERCHARGING ISSUE" »

The U.S. Housing and Urban Development's Real Estate Settlement Procedures Act (RESPA) Division released new updated FAQs on Jan. 28, 2010. The new RESPA frequently asked updated question and answers (FAQs) are in bold.

One of the new questions asks whether a loan originator can require the use of its affiliate company for the tax or flood certificate. The updated RESPA guidance says that the loan originator may not require the use of its affiliate for the tax service or flood certificate, but a loan originator may require the use of a non-affiliated provider.

Three weeks have gone by since the new RESPA Regulations went into effect and the most commonly asked question we have encountered thus far is how are Seller Paid Transfer Tax Charges shown.

The Frequently Asked Questions "FAQs" state that "All charges typically paid by the borrower must be disclosed on the Good Faith Estimate regardless of whether the charges will be paid by the borrower, seller, or other party?" The FAQ under Section 4 & 5 (see pages 34 & 35): Right to Cure Tolerance Violations has caused a great deal of confusion in some areas of the country on the issue of where to put the transfer tax fee. The confusion centers on whether the transfer tax fee has to be disclosed on the borrower's Good Faith Estimate even if the seller is paying for 100% of the transfer tax.

In some areas of the United States the local custom or tradition in a real estate closing has been to make the seller pay for the entire or a portion of the transfer tax or there is language in the real estate contract stating the seller is to pay for all or part of the transfer tax.

The answer is if the seller is paying for the entire transfer tax or a portion of the transfer tax then it must be listed on the borrower's Good Faith Estimate (GFE) and must be shown on the HUD-1 on the borrower's charge column on page 2 of the HUD-1 settlement statement. A credit may be given from the seller to the borrower on page 1 of the HUD-1 to offset the charge. The only exception to this is if state or local law requires the seller pay for the transfer tax. If state law or local law specifically requires the seller to pay all or a portion of the transfer tax then that portion was not required to be on the Good Faith Estimate.

Please remember though that a transfer tax, unless state or local law requires that it be paid by the seller, is a zero tolerance charge and must be disclosed on the borrower's GFE and on the HUD-1. It should also be noted that a lender may overestimate the transfer tax charge as reductions are not considered tolerance violations under the new RESPA guidelines.

The U.S. Department of Housing and Urban Development announced that it would be holding a Real Estate Settlement Procedures Act (RESPA) outreach campaign for real estate industry compliance issues last week.

Continue reading "RESPA: HUD ANNOUNCES NEW RESPA OUTREACH CAMPAIGN" »

HUD announced today a delay in "HUD ENFORCEMENT" on the new RESPA Rule which goes into effect on Jan. 1st, 2010 on FHA loans. We need to highlight the fact that only HUD Enforcement of the new RESPA rule has been delayed for 120 days on FHA loans. Civil litigation on the new RESPA Rule goes into effect on Jan. 1st, 2010 and therefore is not delayed.

We applaud HUD for delaying enforcement of the new rule for 4 months it still exposes companies that do not implement the new changes to potential civil litigation issues for not complying with the new rule.

Another RESPA attorney said it best: "Better pin on your badge and strap on your gun looks like HUD will look to the plaintiff's bar to bring the heat in the first 4 months."

Below is a copy of the HUD press release:

Continue reading "RESPA: HUD OFFICIALLY DELAYS "HUD ENFORCEMENT" OF NEW RESPA REFORM RULE" »

The Director of the Office of RESPA and Interstate Land Sales for the U.S. Department of Housing and Urban Development, Ivy Jackson, clarified an major issue today that addresses industry confusion over the Yield Spread Premium "YSP". Several wholesale lenders issued guidance that the new RESPA restrictions required anyone who is not funding their own loan to have all the YSP, any money made on the interest rate, credited to the borrower. Some wholesale lenders were under the belief that anyone who brokered a loan would not be allowed to make any money on the loans interest rate or YSP.

For example under the current rule if the par rate today was 5.5% and its paying 100.500% that the broker would make their origination of 1% plus .5% on th rate in YSP. However, some wholesale lenders have been issuing guidance to mortgage brokers throughout the country that say the new RESPA restrictions forces the loan originator to credit the .5% YSP to the borrower at closing. This is not accurate as Ivy Jackson clarifies below:

Ivy Jackson said this is not accurate and states that "while true that any YSPs are now shown as a credit to the borrower in Box 2 under "Your Adjusted Origination Charges." The rule eliminates the 1% cap on origination charges for FHA loans.

Based on the wholesaler bankers example and a $100,000 loan, if the broker is going to make $1500.00 on the loan and there is a $500 YSP; Block 1 or "Our Origination Charge" would show $2000.00, Block 2, would show $500, resulting in an "Adjusted Origination Charge" of $1500.00."

The Real Estate Settlement Procedures Act "RESPA" regulations set to take place on January 1, 2010 has purportedly been delayed by HUD for six months. We are now waiting for an official announcement to take place by HUD to officially confirm the six month delay which should make the new implementation date on or around July 1, 2010.

We don't know what precipitated this possible delay by HUD but the real estate industry has stepped up their criticisms on the new rule, including a recent letter sent to HUD by numerous trade organizations, issues with the new Truth In Lending Act form "TILA" integration, and other federal enforcement agencies concerns about the transparency of the new HUD-1 have forced HUD to re-evaluate parts of the new rule. Of course one of the other problems is that many in the real estate industry are still very much unaware or uneducated on the new RESPA Rule.

UPDATED at 10:39 PM:
Assistant Secretary of Housing David Stevens informed me that there will not be a delay in the implementation of the Jan. 1, 2010 RESPA rule. The information we received came from numerous credible sources in Washington, D.C. but it appears that the information regarding the delay according to HUD will not occur.

UPDATE #2 AT 11:53 ON THURSDAY:
Kelly McCarel atRESPA NEWS.COM is now confirming "that HUD has been holding private meetings about the possibility of a delay" according to their sources.

However, Assistant Secretary of Housing Dave Stevens stated to us in an email at 3:00AM this morning that "There have been all sorts of discussions on readiness but a delay on implementation has not been one of them. The industry needs to be prepared for January 1st."

Stay tuned.............

Latest Update November 13, 2009
HUD Announced a 120 day (4 month) delay in HUD Enforcement of the new rule or as HUD calls it a "Restraint in Enforcement."

The United States Department of Housing and Urban Development (HUD) provided updated RESPA Reform compliance guidance on the HUD-1 Settlement Statement three times in the last few weeks. The following frequently asked questions (FAQs) involve only the HUD-1 below and are in addition to the initial FAQs released. We will add the Good Faith Estimate frequently asked questions at a later date. These rules, bearing a miracle, will go into effect on Jan. 10, 2010.

HUD-1 GENERAL

Question:
May separate HUD-1s be given to the seller and borrower with only their own information on each HUD-1?

Answer:
Yes. It is permissible to have two separate HUD-1s in a transaction; one with the buyer's credits and charges only, and one with the seller's credits and charges only. The settlement agent must provide the lender with a copy of both HUD-1s when the borrower's and seller's copies differ.

Question:
If an addendum is used, can the following text be added to the HUD-1: "See attached addendum for additional information"?

Answer:
It is acceptable to insert such a reference where appropriate on the HUD-1 for the purpose of making it clear to the parties what the completed HUD-1 comprises.

Question:
How should payments by the seller or real estate agent that are for settlement services included on the Good Faith Estimate (GFE) be shown on the HUD-1?

Answer:
If a seller or real estate agent pays for a charge that was included on the GFE, the charges should be listed in the borrower's column, with an offsetting credit reported in Lines 204-209 of the HUD-1, identifying the party paying the charge. For a seller-paid charge, the charge should also be listed in Lines 506-509. For a charge paid by the real estate agent, the name of the person paying the charge must also be listed.

Question:
The instructions in Appendix A to Part 3500 for completing the HUD-1 indicate how fees that are paid outside of closing should be designated on the HUD-1. Can the convention "P.O.C. (B*) be used instead, with the following footnote at the bottom of the page: *Paid outside of closing by borrower"?

Answer:
Yes, the HUD-1 Instructions require that P.O.C. items be listed on the HUD-1 by the settlement agent with an indication whether P.O.C. items are paid by the borrower, seller, or other party by marking the items paid for by whoever made the payment identified in the parentheses, such as P.O.C. (borrower) or P.O.C. (seller) as long as a footnote is added to the HUD-1 clearly noting the party paying for the items such as *Paid outside of closing by borrower or *Paid outside of closing by seller.

Question:
Where should fees for processing and administrative services be listed on the HUD-1 Settlement Statement?

Answer:
Processing and administrative services are services to perform origination and title service functions. For the loan origination function, charges for such services are included in the total on Line 801. For the title services function, charges for such services must be included in the title underwriter's or title agent's charge and are shown in the total on Line 1101. Examples of processing and administrative services include, but are not limited to, the following: document delivery, document preparation, copying, wiring, preparing endorsements, document handling, and notarization.

Question:
Where should the survey fee be disclosed on the HUD-1?

Answer:
The location of the survey fee on the HUD-1 is determined as follows:
(a) if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider, the charge for the survey must be listed on a blank line in the 800 series in the borrower's column;
(b) if the loan originator required a survey as a condition of the loan and the borrower selected the settlement service provider, the charge for the survey must be listed as part of the total in Line 1301 of the HUD-1 and itemized as applicable;
(c) if a survey was required to issue a lender's or owner's title insurance policy, the charge for the survey is part of the charge in Line 1101 and must be further itemized if performed by a third party;
(d) if the borrower elected to obtain a survey that was neither required by the loan originator nor required to issue a lender's or owner's title insurance policy, then the charge is listed in the borrower's column on a blank line in the 1300 series.

Question:
May an addendum be added to the HUD-1 to list additional fees and other information?

Answer:
Yes, an additional page may be attached to the HUD-1 to add sequentially numbered lines as needed to accommodate the complete listing of all items required to be shown on the HUD-1, and for the purpose of including customary recitals and information used locally in real estate settlements (for example, breakdown of payoff figures, a breakdown of borrower's total monthly mortgage payments, check disbursements, a statement indicating receipt of funds, applicable special stipulations between buyer and seller, and the date funds are transferred).

Question:
The General Instructions indicate that if a charge has been shown on the GFE as payable by the borrower but at closing it is paid by another person, including by the loan originator in a loan other than a no-cost loan, the fee should be shown in the borrower's column on the HUD-1 and be offset by listing a credit to the borrower on lines 204-209 of the HUD-1. If a HUD-1A form is being used, lines 204-209 do not exist. How should the credit be shown on a HUD-1A form?

Answer:
Use of the HUD-1A form is an optional form to be used by the settlement agent in a transaction in which there is not a seller and as otherwise appropriate. If the use of a HUD-1A form is not appropriate, such as if there is a credit given by a loan originator or other party, the settlement agent must use the HUD-1 form.

Question:
In a transaction that is closed in the mortgage broker's name but is table funded by the lender, must the name and address of the funding lender be shown in Section F (consistent with definition of "lender" under 24 CFR §3500.2(b)) or may the mortgage broker's name and address be shown?

Answer:
The HUD-1 Instructions for Section F state that the name and address of the lender must be stated in this section. Therefore the name of the lender and not the mortgage broker must be stated in Section F on the HUD-1.

Continue reading "HUD RELEASES ADDITIONAL COMPLIANCE GUIDANCE ON NEW RESPA RULE" »

On July 30, 2009, some of the provisions of the Mortgage Disclosure Improvement Act of 2008 (MDIA) go into effect and lenders, mortgage brokers, title agents, real estate agents, and real estate brokerages need be alert as to these new federal governmental regulations. Here are the details for the MDIA:

1. The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial TIL statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.

2. If the final annual percentage rate APR is off by more than .125% from the initial GFE disclosure then the lender must re-disclose and wait yet another three business days before closing on the transaction.

3. The consumer has the right to cancel and not proceed with the transaction if they so choose.

4. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the Truth In Lending (TIL). Lenders can only collect from the borrower the credit report fee at the time of prior to delivery of the final TIL. No other fees are permitted to be collected at the time of application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.

5. The following language must be clearly written on the initial and final TIL: "You are not required to complete this agreement merely because you have received these disclosures or signed a loan application."

If you are a real estate agent or title agent you need to manage the process very carefully by:

A. Making sure that you check the initial Good Faith Estimate and Truth In Lending form for your buyers and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.

B. Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial TIL.

Continue reading "MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) GOES INTO EFFECT ON JULY 30, 2009" »

U.S. Rep. Barney Frank officially introduced legislation to create the Consumer Financial Protection Agency (CFPA). The legislation, which is backed by the Obama Administration, would consolidate the consumer protection powers of the fifty various federal financial regulatory agencies by creating a single regulatory agency. The creation of this single regulatory agency is the single most important aspect of the proposed 229 page Consumer Financial Protection Agency proposal.

The current financial governing system encourages abuses in the industry to take place because of the loopholes created by an inefficient and ineffective regulatory structure. The loopholes are exploited even further by the mass infighting that many of the governmental regulatory bureaucracies regularly display. The consolidation of these various federal agencies into one rule-making and investigative federal division should provide more uniform rules for those in the real estate industry and for consumers of real estate products.

The CFPA will have sole authority to draft and interpret regulations under the existing consumer financial services and fair lending statutes. The recent Good Faith Estimate/HUD-1 Settlement Statement forms developed by HUD and the Truth In Lending Act form is a prime example of decisions being made by one federal agency without input from a completely different agency. The biggest benefit consolidation presents to the industry and to the consumer is that this will increase the number of enforcement investigators. The consolidation of regulatory investigators is crucial because quite often investigators in one agency stop investigating abuses that relate to other agencies due to a myriad of reasons.

Continue reading "THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA) PROPOSAL INCLUDES RESPA AND TILA REGULATORY GOVERNANCE" »

Reporter Kate Moran of the Times Picayune wrote a terrific article on a lawsuit the Sterbcow Law Group LLC and Melancon Rimes LLC filed on in behalf of their client and plaintiff Sarada LeBourgeois who was the victim of mortgage fraud.

"Lawsuit alleges that a loan originator stole money from a client" was published on May 12, 2009 and briefly describes the events surrounding the lawsuit. The federal case was recently remanded back to Civil District Court in New Orleans by U.S. District Judge Lance Africk.

Kelly McCarel with RESPA News also wrote an excellent article on the case on Feb. 12, 2009 entitled Louisiana case ties RESPA violations to alleged mortgage fraud"

The case was filed in the Orleans Parish, Civild District Court in Louisiana with the docket number 2008-2705 and is listed under the name Sarada LeBourgeois, et al. v. Allied Home Mortgage Capital Corporation, et al.

Oregon Senator Jeff Merkley has introduced two new legislative bills that the real estate industry and public need to be keenly aware of: Senate Bill 911 known as The Transparency for Homeowners Act and Senate Bill 912 known as The Promoting Mortgage Responsibility Act. Sen. Merkley believes that abolishing the Yield Spread Premium (YSP) will stop the real estate mortgage problems in the United States because by eliminating the YSP will kill off the mortgage brokerage industry who rely on the YSP as part of their compensation. There have been abuses with the YSP and never was that more apparent during the sub-prime mortgage craze but if Senator Merkley was really interested in reigning in abusive practices they why didn't he address the Service Release Premium (SRP) abuses which far exceeded the abuses of the Yield Spread Premium? Robert Blake of the Mortgage Insider criticizes both bills as an attempt by the banking lobby to kill off their competition.

Continue reading "OREGON SENATOR JEFF MERKLEY INTRODUCES TRANSPARENCY FOR HOMEOWNERS ACT AND PROMOTING MORTGAGE RESPONSIBILITY ACT OF 2009" »

The Obama Administration is pushing new legislation which would create a financial services regulatory commission. The commission would be called "The Financial Product Safety Commission" and it would regulate all mortgages, credit cards, and mutual funds. The Washington Post's Zachary A. Goldfarb, Binyamin Appelbaum and David Cho wrote an article on May 20, 2009.

The Senate version of this bill under Section 10: Enforcement has some very strong criminal and civil money penalties that could further strengthen consumer protections against businesses. The current senate & house versions of the bill could add considerable consumer protections against loan servicing companies which under Section 6 of RESPA offer consumers very little protection from some mortgage servicing companies abusive practices. This is definitely one of those bills to keep an eye on as the ramifications could be huge for businesses and consumers.

Continue reading "RESPA: THE FINANCIAL PRODUCT SAFETY COMMISSION ACT OF 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.

The American Land Title Association (ALTA) sent a letter to the Federal Housing Administration asserting that Department of Housing and Urban Development is violating Section 9 of the Real Estate Settlement Procedures Act (RESPA) with regards to the HUD-designated closing agent stipulation on all HUD properties for sale.

Section 9 of RESPA prohibits the seller of property from requiring the use of a particular title company unless the seller pays for all the borrowers title closing costs. Housingwire.com has more information on the letter sent to HUD by ALTA.

October Research has selected Charles C. Cain to be a speaker at the 2009 National Compliance Summit on February 19-20, 2009 at The Westin Casuarina Las Vegas Hotel, Casino & Spa. Charles Cain is Of Counsel to the Sterbcow Law Group LLC in New Orleans, Louisiana and is President of Alliance Solutions LLC based in Cincinnati, Ohio.

A recent RESPA litigation ruling by the United States Sixth Circuit Court of Appeals in Cincinnati, Ohio sparked headlines this week when they overturned a district court ruling denying class certification in the Erik C. Carter, et. al., United States of America v. Welles Bowen Realty, Inc. et al lawsuit. No. 07-3965.

The issue at dispute is whether a Section 8 claim of the Real Estate Settlement Procedures Act violation gives consumers "standing even if the consumer does not allege an above-market race charge for services, i.e. an 'overcharge.'" The district court previously held that because the defendants did not over charge the consumers they didn't suffer an injury but the appellate court has overturned the district courts decision.

Welles-Bowen Title Agency is a joint venture affiliated business arrangement, owned by Welles-Bowen Realty, Inc. and Chicago Title Insurance Company--a Fidelity subsidiary. The alleged problem with the relationship however appears to be that Welles-Bowen Title Agency did not really perform any settlement work, review title, or even conduct the closings. However, Chicago Title gave Welles-Bowen Realty, Inc. seventy percent (70%) of the fees and title policy money generated. If the allegations are true then this relationship would appear to be an illegal sham affiliated business arrangement under federal RESPA guidelines. There are other issues at play as well, such as the State of Ohio's affiliated business arrangement ownership and profit requirements but those were not addressed in this appellate decision.

Continue reading "REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA) LITIGATION UPDATE " »

The new Real Estate Settlement Procedures Act (RESPA) guidelines are now officially enacted as of Friday, Jan. 16, 2009. However the Required Use Section 9 changes have been put on hold for 90 days pending a review by HUD which was prompted by the National Association of Homebuilders lawsuit.

The new Good Faith Estimate (GFE) and Housing & Urban Development Settlement Statement (HUD-1) can now be used but won't be required until next year. However if a lending institution does use the new Good Faith Estimate form then the new HUD-1 and HUD-1A must be used as well in order to be compliant with the new rules.

If you are a lender or title agent please make sure you and your staff are educated on these changes because the new rules will create a substantial risk for litigation for companies who are unaware of the new rules.

We are hearing from multiple sources that the United States Department of Housing and Urban Development (HUD) will be formally announcing delaying the implementation of the new RESPA Reform rule which is scheduled to go into effect on January 16, 2009, The delay is in response to the National Association of Home Builder's (NAHB) lawsuit against HUD that was filed on December 23, 2008. We will provide an update on NAHB lawsuit later.

The RESPA implementation delay is rumored to be 90 days from Jan. 16, 2009, meaning the new RESPA guidelines rule regarding Required Use and Section 9 of RESPA at this point will go info effect on April 16, 2009. The 90 days will give HUD 90 days to study the NAHB lawsuit.

The Sterbcow Law Group is pleased to announce that Charles C. Cain will join the law firm effective January 1, 2009. Charles will be "Of Counsel" and will work out of his Cincinnati, Ohio office. Charles is highly regarded as one of the country's top RESPA compliance and regulatory attorneys by many in the legal and real estate industry. He will add tremendous depth to the firm in our rapidly expanding RESPA litigation and compliance practice.

Charles joins The Sterbcow Law Group from LandAmerica Financial Group, Inc. where he was the Vice President of LandAmerica's Senior Alliance Business Partner division where he focused on management and creation of over 400 RESPA compliant affiliated business relationships in over 28 states. He also provided employee and independent agent RESPA training. Charles is also President of Alliance Solutions LLC in Cincinnati, Oho.

Charles has been a featured speaker at various events such as The Real Estate Settlement Providers Organization, October Research's programs such as Title Radio and the National Settlement Services Summit, Ohio Bar Association, Kentucky Bar Association, Ohio Land Title Association, Indiana Land Title Association, Missouri Land Title Association, and Michigan Land Title Association. His reputation and knowledge are one of the many reasons that numerous state regulators throughout the United States consult with him for RESPA guidance.

The United States Department of Housing and Urban Development awarded him the "Special Citation" for Fair Housing Best Practices. He is the Past Chairman of the Real Property Section of the Cincinnati Bar Association, former Trustee of the Cincinnati Mortgage Bankers Association, Member of the Mayor of Cincinnati's Blue Ribbon Committee of the Cincinnati Housing Partnership, and a Member of the Cincinnati Area Fair Mortgage Credit Project through the Federal Reserve Bank of Cleveland.

Charles is admitted to practice law in Ohio, Kentucky, various Federal Courts, and the U.S. 6th Circuit Court of Appeal.

Continue reading "NATIONALLY ACCLAIMED RESPA ATTORNEY, CHARLES "CHUCK" CAIN, JOINS THE STERBCOW LAW GROUP" »

President Elect Barak Obama has selected Shaun Donovan to be the next United States' Secretary of Housing and Urban Development. Donovan, who was the head of the New York Department of Housing Preservation and Development, is viewed by many in the industry as someone who possesses a significant amount of experience in the housing field.

Donovan was Managing Director for Prudential Mortgage Capital Co's Lending and Affordable Housing Investments Division prior to his position with New York City. Real Estate Industry groups (the National Association of Realtors Mortgage Bankers Association, and others) have lauded Donovan's selection once his name became public.

Donovan will inherit a lot of controversial regulations including RESPA Reform and will have to address other areas including the Federal Housing Administration's (FHA) lending issues.

If the Senate confirms Donovan he will replace Steve Preston.

Continue reading "HUD: PRESIDENT ELECT OBAMA SELECTS SHAUN DONOVAN TO BE NEW SECRETARY " »