RESPA Lawyer Blog

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.

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (1)

Posted In: Affiliated Business Arrangements (AfBA) , Affiliated Business Disclosure Form , Federal Housing Administration FHA , GOOD FAITH ESTIMATE "GFE" , HOME VALUATION CODE OF CONDUCT (HVCC) , HUD-1 Settlement Statement , MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) , REQUIRED USE: Section 9 under the new RESPA rule , RESPA , RESPA LITIGATION , RESPA Reform , RESPA VIOLATIONS

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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" »

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (1)

Posted In: Affiliated Business Disclosure Form , Federal Housing Administration FHA , GOOD FAITH ESTIMATE "GFE" , HOME VALUATION CODE OF CONDUCT (HVCC) , MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) , RESPA , RESPA LITIGATION , RESPA Reform , RESPA VIOLATIONS , TRUTH IN LENDING ACT , YIELD SPREAD PREMIUM "YSP"

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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."

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (8)

Posted In: Federal Housing Administration FHA , GOOD FAITH ESTIMATE "GFE" , REQUIRED USE: Section 9 under the new RESPA rule , RESPA , RESPA LITIGATION , RESPA Reform , RESPA SECTION 6: LOAN SERVICING , RESPA SECTION 8(b): UNEARNED FEES , RESPA SECTION 8: ILLEGAL KICKBACKS & REFERRAL FEES , RESPA SECTION 9: REQUIRED USE , RESPA VIOLATIONS , RESPA: SECTION 10 ESCROW ACCOUNTS , RESPA: YIELD SPREAD PREMIUM , TRUTH IN LENDING ACT

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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" »

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (27)

Posted In: Affiliated Business Arrangements (AfBA) , Federal Housing Administration FHA , GOOD FAITH ESTIMATE "GFE" , MORTGAGE DISCLOSURE IMPROVEMENT ACT (MDIA) , PROMOTING MORTGAGE RESPONSIBILITY ACT OF 2009 , RESPA , RESPA LITIGATION , RESPA Reform , RESPA: SECTION 10 ESCROW ACCOUNTS , RESPA: YIELD SPREAD PREMIUM , THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA) , TRANSPARENCY FOR HOMEOWNERS ACT OF 2009

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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" »

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (1)

Posted In: Affiliated Business Arrangements (AfBA) , Affiliated Business Disclosure Form , Federal Housing Administration FHA , GOOD FAITH ESTIMATE "GFE" , REQUIRED USE: Section 9 under the new RESPA rule , RESPA , RESPA CONFERENCE , RESPA LITIGATION , RESPA Marketing Agreements , RESPA Reform , RESPA SECTION 6: LOAN SERVICING , RESPA SECTION 8(b): UNEARNED FEES , RESPA SECTION 8: ILLEGAL KICKBACKS & REFERRAL FEES , RESPA SECTION 9: REQUIRED USE , RESPA VIOLATIONS , RESPA: SECTION 10 ESCROW ACCOUNTS , RESPA: YIELD SPREAD PREMIUM , THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA)

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The United States Supreme Court shocked the national banking industry today in their ruling in the case CUOMO V. CLEARING HOUSE ASSOCIATION, 08-453. The U.S. Supreme Court ruled in a 5-4 decision that state regulators have the authority to investigate national banks for lending discrimination. In 2004, the Office of the Comptroller of the Currency (OCC) issued a regulatory change that made it extremely difficult for state regulators to enforce state laws against national banks. The Cuomo v. Clearing House Association case is a tremendous decision for consumers and state regulators because the OCC.

The OCC has been routinely criticized for not investigating consumer complaints against national banks. This decision means that states can now enforce their own state laws against national banks so long as they follow due process procedures set forth under state law. This is an enormous victory for not only consumers but also state bank regulators.

Continue reading "UNITED STATES SUPREME COURT RULES STATES CAN INVESTIGATE NATIONAL BANKS" »

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Posted In: RESPA LITIGATION

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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.

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (2)

Posted In: RESPA , RESPA LITIGATION , RESPA SECTION 6: LOAN SERVICING , RESPA SECTION 8(b): UNEARNED FEES , RESPA SECTION 8: ILLEGAL KICKBACKS & REFERRAL FEES , RESPA SECTION 9: REQUIRED USE , RESPA VIOLATIONS

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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" »

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (0)

Posted In: Administrative Brokerage Commission Fees (ABC) , Affiliated Business Arrangements (AfBA) , Affiliated Business Disclosure Form , GOOD FAITH ESTIMATE "GFE" , REQUIRED USE: Section 9 under the new RESPA rule , RESPA , RESPA LITIGATION , RESPA Marketing Agreements , RESPA Reform , RESPA SECTION 6: LOAN SERVICING , RESPA SECTION 8(b): UNEARNED FEES , RESPA SECTION 9: REQUIRED USE , RESPA VIOLATIONS , RESPA: SECTION 10 ESCROW ACCOUNTS

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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.

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (1)

Posted In: RESPA , RESPA LITIGATION , RESPA SECTION 8(b): UNEARNED FEES , RESPA VIOLATIONS

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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.

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (0)

Posted In: Administrative Brokerage Commission Fees (ABC) , Affiliated Business Disclosure Form , REQUIRED USE: Section 9 under the new RESPA rule , RESPA , RESPA CONFERENCE , RESPA LITIGATION , RESPA Marketing Agreements , RESPA Reform , RESPA SECTION 6: LOAN SERVICING , RESPA SECTION 9: REQUIRED USE

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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 " »

Posted by Marx Sterbcow | Permalink | Email This Post | Comments (1)

Posted In: RESPA , RESPA LITIGATION

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