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. ยง2607 “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.