February 10, 2014

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

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

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

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

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

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

January 31, 2014

RESPA: FEDERAL COURT CERTIFIES MARKETING AGREEMENT CLASS ACTION

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

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

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

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

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

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

December 10, 2013

2014 REGULATORY OUTLOOK: COMPLIANCE, ENFORCEMENT, AND PRESSURE POINTS WEBINAR

The Dodd-Frank Update and The Legal Description legal publications at October Research, LLC have teamed up to host a 90-minute federal regulatory outlook webinar for mortgage, title insurance and settlement services professionals. This in-depth training features two top compliance attorneys who will educate participants on significant regulations impacting the industry in 2014. The webinar will be held on Tuesday, December 10, 2013 from 2:00-3:30 PM EST.

Speakers Mitch Kider, of Weiner Brodsky Kider PC, and Marx Sterbcow, of The Sterbcow Law Group, will define significant regulations, what companies should be doing now to prepare and what the regulatory landscape will look like as we move into yet another year of complying with thousands of pages of new and existing regulations. Topics will include:

•CFPB enforcement actions: Who’s at risk and what to expect;

•QM/QRM and what mortgage lending will look like;

•RESPA/TILA mortgage disclosure forms;

•Lender supervision of title agents; and

•The changing dynamics of affiliated business arrangements.

To register click here

October 31, 2013

Office of the Comptroller of the Currency releases Vendor Management Bulletin

On October 30, 2013, the Office of the Comptroller of the Currency "OCC" issued a bulletin on "Risk Management Guidance" which will have wide ranging implications for all vendors of national banks and federal savings associations. The bulletin provides new guidance for assessing and managing compliance risks associated with third-party relationships. A 3rd party relationship is any business arrangement between a banks and another entity, by contract or otherwise.

3rd party relationships include activities that involve outsourced products and services, use of independent consultants, networking arrangements, merchant payment processing services, services provided by affiliates and subsidiaries, joint ventures, and other business arrangements where the bank has an ongoing relationship or may have responsibility for the associated records. Affiliate relationships are also subject to sections 23A and 23B of the Federal Reserve Act (12 USC 371c and 12 USC 371c-1) as implemented in Regulation W (12 CFR 223). Third-party relationships generally do not include customer relationships.

The OCC stated that it "expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank's use of 3rd parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws."

The OCC released the bulletin in response to the on-going concern that banks were continuing to increase the number and complexity of third party relationships with both foreign and domestic 3rd parties. Specifically they highlighted:
(1) outsourcing entire bank functions to third parties, such as tax, legal, audit, or information technology operations;
(2) outsourcing lines of business or products;
(3) relying on a single third party to perform multiple activities, often to such an extent that the third party becomes an integral component of the bank’s operations;
(4) working with third parties that engage directly with customers;
(5) contracting with third parties that subcontract activities to other foreign and domestic providers;
(6) contracting with third parties whose employees, facilities, and subcontractors may be geographically concentrated; and
(7) working with a third party to address deficiencies in bank operations or compliance with laws or regulations.

The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has:
(1) failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships.
(2) failed to perform adequate due diligence and ongoing monitoring of third-party relationships.
(3) entered into contracts without assessing the adequacy of a third party’s risk management practices.
(4) entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues.
(5) engaged in informal third-party relationships without contracts in place.

These examples represent trends whose associated risks reinforce the need for banks to maintain effective risk management practices over third-party relationships.

Continue reading "Office of the Comptroller of the Currency releases Vendor Management Bulletin" »

August 27, 2013

MARX STERBCOW AND CHARLES CAIN TO PRESENT AT LOUISIANA LAND TITLE ASSOCIATION'S (LLTA) ANNUAL CONFERENCE ON MARKETING SERVICES AGREEMENTS AND RESPA COMPLIANCE

Marx Sterbcow, Managing Attorney at Sterbcow Law Group, and Charles Cain, Of Counsel to Sterbcow Law Group and Senior Vice President to WFG National Title Insurance Company, have been selected by the Louisiana Land Title Association (LLTA) to speak at the LLTA's Annual Conference on the topic of real estate settlement procedures act (RESPA) compliance involving marketing service agreements. They will discuss the latest issues surrounding the use of Marketing Agreements and whether an enforcement action or guidance bulletin by the CFPB involving the use of these agreements may be forthcoming.

The presentation will discuss what a typical Marketing Agreement is; how the HUD interpretive rule on home warranties impacts Marketing Services Agreements, identifying red flags in MSAs, and the impact the Federal Financial Institutions Examination Council (FFIEC) third party social media compliance bulletin may have on your marketing agreement.

The LLTA Conference is being held at the Hotel Monteleone in New Orleans on Dec. 4-6, 2013.

August 15, 2013

RESPA CLASS ACTION: INFORMATIONAL INJURY IS SUFFICIENT TO PROVE STANDING

The 8th Circuit Court of Appeals overturned a district court decision in the Charvat v. Mutual First Federal Credit Union case. The case involved a violation of the Electronic Fund Transfer Act ("EFTA") 15 U.S.C. §1693 where the Charvat's made several ATM withdrawals from two Nebraska banks. The 8th Circuit stated "The EFTA requires ATM operators to provide two forms of notice, one "on or at" the ATM machine and another on-screen during the ATM transaction, if the bank operators charged a ATM transaction fee. The ATM machines in question failed to provide the required notice disclosure on the "on ATM machine" and this was the basis for the class action.

The 8th Circuit held that "[D]ecisions by this Court and the Supreme Court indicate that an informational injury alone is sufficient to confer standing, even without an additional economic or other injury." The 8th Circuit further stated that Charvat identified a variety of instances where the denial of a statutory right to receive information was sufficient to establish standing and cited to the Fed. Election Comm'n v. Akins case and more importantly the Dryden v. Lou Budke's Arrow Fin. Co. which was a Truth-In-Lending Act case.

The citing of the Dryden case is particularly important because the 8th Circuit said ""f [borrower] proved that the disclosure provisions of [TILA] and Regulation Z were violated in connection with the January 26 transaction, [lender] is liable for statutory damages.")." The 8th Circuit said the EFTA creates a right to a particular form of notice before an ATM transaction fee could be levied. If that notice was not provided and a fee was nonetheless charged, an injury occurred, and the statutory damages are directly related to the consumer's injury."

"Informational Injury" in RESPA and TILA class actions will certainly cite to the Charvat case in order to overcome any standing challenges.

May 17, 2013

CFPB RESPA ENFORCEMENT ACTION ALERT

The Consumer Financial Protection Bureau "CFPB" ordered a Texas homebuilder, Paul Taylor, to pay $118,194.20 he received in kickbacks for referring mortgage origination business to Benchmark Bank and to Willow Bend Mortgage Company in violation of the real estate settlement procedures act "RESPA". The CFPB also prohibited Paul Taylor from engaging in future real estate settlement services, including mortgage origination.

The CFPB said Paul Taylor received illegal referral fees through partnerships with Benchmark Bank and Willow Bend Mortgage Company. Taylor and Benchmark Bank created and jointly owned Stratford Mortgage Services, LC, which claimed to be a mortgage originator. The CFPB stated that Taylor and Willow Bend were created and jointly owned a company called PTH Mortgage Company. The CFPB stated that both entities were shams designed to allow Taylor to receive the kickbacks. Pat Taylor's homebuilding company, Paul Taylor Homes, then referred mortgage origination business to the sham entities but the work was actually performed by Benchmark Bank and Willow Bend Mortgage Company. The Consumer Financial Protection Bureau said the kickbacks were passed through the sham entities back to Taylor through profit distributions and as a payment through a “service agreement.”

Of particular note is the CFPB's emphasis on payment via a "service agreement" in this settlement and of the language "employees in a position to refer customers or potential customers to settlement providers." This could be a hint at where the CFPB is headed next in their enforcement actions.

The Federal Deposit Insurance Corporation "FDIC" referred the incident to the CFPB. The FDIC separately fined Benchmark Bank for violating RESPA. The CFPB settlement can be viewed by clicking here.

April 12, 2013

RESPA CONFERENCE: MARX STERBCOW TO PRESENT AT NATIONAL SETTLEMENT SERVICES SUMMIT IN CLEVELAND, OHIO

Attorney Marx Sterbcowof the Sterbcow Law Group will lead a panel presentation along with Attorney Jeff Arouh of McLaughlin & Stern at the October Research Corporation's National Settlement Services Summit being held at the Marriott at Key Center in Cleveland, Ohio on June 11, 2013. The session titled "Strategic Alliances and the Future of Affiliated Businesses" will offer practical guidance on the issues surrounding affiliated businesses and their future under the Qualified Mortgage (QM) and Qualified Residential Mortgage proposals under the Dodd-Frank Act and we will examine who the winners and losers are in the affiilated business industry. The session also discusses why lending compliance under the new federal rules and regulations may be fueling growth in the creation of new affiliated businesses even with the 3% lender affiliated business arrangement annual percentage rate (APR) cap on points and fees restriction.

For more information and on-line registration, please go to: 2013 National Settlement Services Summit.

March 12, 2013

MARX STERBCOW AND CHARLES CAIN TO PRESENT AT RESPA News' RESPA WEBINAR SERIES ON MAY 18, 2013

Marx Sterbcow, Managing Attorney at Sterbcow Law Group, and Charles Cain, Of Counsel to Sterbcow Law Group and Senior Vice President to WFG National Title Insurance Company, have been selected by RESPA News to co-present a webinar on the future of marketing agreements under the Consumer Financial Protection Bureau (CFPB). We discuss way to prepare for and deal with the latest issues surrounding the use of Marketing Agreements (also known as Preferred Provider Agreements, Marketing Services Agreements, Advertising Agreements, or Co-Branding Agreements) and whether an enforcement action or guidance bulletin by the CFPB involving the use of these agreements may be forthcoming.

The presentation, entitled "Reviewing your Marketing Agreement and the Interpretive Rule Webinar" will cover issues such as the what a typical Marketing Agreement is; how the HUD interpretive rule on home warranties impacts their use, how to minimize your risks by looking for red flag language, and the impact the Federal Financial Institutions Examination Council (FFIEC) third party social media compliance bulletin may have on your marketing agreement. The FFIEC's social media bulletin will have a significant impact on the use of these agreements so this is a webinar event you do not want to miss.

This event is from 2:00-3:00 PM EST on Wednesday, May 18, 2013.

To register for Part 3 of the RESPA News Webinar Series please click here.

December 10, 2012

CONSUMER FINANCIAL PROTECTION BUREAU AND DEPARTMENT OF JUSTICE ANNOUNCE AGREEMENT ON FAIR LENDING LAWS ENFORCEMENT

The Consumer Financial Protection Bureau "CFPB" and the United States Department of Justice "DOJ" formally entered into an Memorandum of Understanding Agreement "MOU" pursuant to Section 1054(d)(2)(B) of the Dodd-Frank Wall Street Reform and Consumer Protection Act which mandated the two agencies to establish an agreement between themselves to help prevent enforcement conflicts and help streamline fair lending law litigation under Federal law. The MOU involves Federal fair lending laws such as the Equal Credit Opportunity Act, Home Mortgage Disclosure Act, and Truth In Lending Act.

The MOU outlined three key areas for this cooperative agreement:

1. Information sharing and confidentiality issues: the agencies will be sharing information in matters that the CFPB refers to the Justice Department, in joint investigations under the ECOA, and in order to coordinate fair lending enforcement. The MOU establishes strict confidentiality protections for this shared information.

2. Joint investigations and coordination: the MOU provides for collaboration in investigations as well as coordination in joint investigations involving the CFPB and DOJ. The agencies will also meet regularly to discuss pending fair lending investigations and opportunities for coordination.

3. Referrals and notifications: the CFPB will refer matters to the Justice Department when it has reason to believe that a creditor has engaged in a pattern or practice of lending discrimination. Because a referral to the Justice Department does not affect the CFPB’s authority to pursue its own supervisory or enforcement action, the CFPB and the Justice Department will coordinate their efforts to avoid unnecessarily duplicative actions. The agencies agreed to notify each other of their enforcement work, such as the opening of an investigation or the filing of a lawsuit.


May 7, 2012

CFPB: CONSUMER FINANCIAL PROTECTION BUREAU ISSUES BULLETIN ON SERVICE PROVIDER COMPLIANCE

On April 13, 2012 the Consumer Financial Protection Bureau (CFPB) issued Bulletin 2012-03 titled "Service Providers". The CFPB stated that it expects supervised banks and nonbanks to oversee their business relationships with their service providers in a manner that ensures compliance with Federal consumer financial law, which is designed to protect the interests of consumers and avoid consumer harm.

The term "Service Provider" is defined in Section 1002(26) of the Dodd-Frank Act as "Any person that provides a material service to a covered person in connection with the offering or provision by such covered person of a consumer financial product or service." (12 U.S.C. Section 5481(26)). A "Service Provider" may or may not be affiliated with the person to which it provides services."

The Consumer Financial Protection Bureau in its bulletin states that the CFPB "recognizes that the use of service providers is often an appropriate business decision for supervised banks and nonbanks. Supervised banks and nonbanks may outsource certain functions to service providers due to resource constraints, use service providers to develop and market additional products or services, or rely on expertise from service providers that would not otherwise be available without significant investment."

The CFPB's bulletin expresses concerns about the lack of liability by the lender to the consumer for third party behavior. "The mere fact that a supervised bank or nonbank enters into a business relationship with a service provider does not absolve the supervised bank or nonbank of responsibility of complying with Federal consumer financial law to avoid consumer harm. A "service provider" that is unfamiliar with the legal requirements applicable to the products or services being offered, or that does not make efforts to implement those requirements carefully and effectively, or that exhibits weak internal controls, can harm consumers and create potential liabilities for both the service provider and the entity with which it has a business relationship." The Consumer Financial Protection Bureau states that "depending on the circumstances, legal responsibility may lie with the supervised bank or nonbank as well as with the supervised service provider."

In short the CFPB now expects supervised banks and nonbanks to make sure the service providers comply with the law. The CFPB by issuance of this bulletin has effectively put the entire real estate industry on notice that if they want to do business in the future they had better make sure their internal controls are in place otherwise the supervised bank or nonbank will cease doing business with you.

Continue reading "CFPB: CONSUMER FINANCIAL PROTECTION BUREAU ISSUES BULLETIN ON SERVICE PROVIDER COMPLIANCE" »

November 9, 2011

RESPA: H.R. 2446 RESPA HOME WARRANTY CLARIFICATION ACT OF 2011

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" »

November 7, 2011

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

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" »

July 12, 2011

RESPA: HUD ANNOUNCES SETTLEMENT WITH PROSPECT MORTGAGE

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.

July 11, 2011

RESPA: HUD ANNOUNCES SETTLEMENT WITH FIDELITY NATIONAL TITLE OVER USE OF TRANSACTIONPOINT KICKBACKS AND ILLEGAL REFERRAL FEES

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

June 20, 2011

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

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" »

December 22, 2010

RESPA: CONSUMER FINANCIAL PROTECTION BUREAU ENFORCEMENT DIVISION TO BE HEADED UP BY RICHARD CORDRAY

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.

November 25, 2010

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

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" »

September 17, 2010

CONSUMER FINANCIAL PROTECTION BUREAU: PRESIDENT OBAMA APPOINTS ELIZABETH WARREN AS ASSISTANT TO THE PRESIDENT AND AS A SPECIAL ADVISOR TO TREASURY

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.

June 29, 2010

REAL ESTATE SETTLEMENT PROCEDURES ACT: RESPA ISSUES INTERPRETIVE RULE ON HOME WARRANTY MARKETING AGREEMENTS

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" »

April 9, 2010

RESPA: DEPUTY DIRECTOR IVY JACKSON IS SHUFFLED OUT OF RESPA DIVISION

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.

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July 13, 2009

THE CONSUMER FINANCIAL PROTECTION AGENCY (CFPA) PROPOSAL INCLUDES RESPA AND TILA REGULATORY GOVERNANCE

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" »

May 22, 2009

RESPA: THE FINANCIAL PRODUCT SAFETY COMMISSION 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" »

January 29, 2009

RESPA: 2009 NATIONAL COMPLIANCE SUMMIT TO FEATURE CHARLES C. CAIN AS GUEST SPEAKER IN LAS VEGAS

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.

June 18, 2008

RESPA MARKETING AGREEMENT ABRUPTLY TERMINATED AND LAWSUIT ENSUES

The Denver Post reports that First American Residential Group Inc. terminated a $600,000.00 a year marketing agreement contract with Re/Max International Inc. after Colorado regulators questioned the legitimacy of their arrangement. Erin Toll, the director of the Colorado Division of Real Estate has asked the United States Department of Housing and Urban Development's (HUD) RESPA Division to help them in their investigation of these types of marketing agreement relationships to determine whether they are legal or illegal.

First American paid Re/Max $2.4 million dollars over the course of 4 years under this "secretive" marketing agreement. Re/Max sued First American because First American refused to pay $693,000.00 under the terms of the marketing agreement contract.

Be extremely careful in the use of Marketing Agreements as HUD has quietly taken the position that all Marketing Agreements may be illegal.

Continue reading "RESPA MARKETING AGREEMENT ABRUPTLY TERMINATED AND LAWSUIT ENSUES" »

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