Articles Posted in RESPA LITIGATION

A RESPA class action lawsuit filed in the U.S. District Court for the Central District of California ruled that overnight delivery fees constituted settlement services under the Real Estate Settlement and Procedures Act “RESPA”. The case Henson v. Fidelity National Financial Inc., 2014 WL 1246222 (C.D. Cal. March 21, 2014) alleges that Fidelity has agreements with various overnight delivery companies (i.e. UPS, Federal Express, and OnTrac) which violate RESPA when Fidelity receives “marketing” fees in exchange for referring overnight delivery business to the overnight carriers through Fidelity’s escrow subsidiaries.

The lawsuit states that Fidelity is the controlling parent of various escrow subsidiaries and these escrow subsidiaries use UPS, Federal Express, and OnTrac (the “delivery companies”) to handle overnight deliveries in connection with processing and closing federally related mortgage loans. Fidelities subsidiaries then charge escrow customers for these delivery services in the customers real estate transactions. The lawsuit alleges that Fidelity has separate, written “master” agreements with each of the delivery companies through a subsidiary of Fidelity called EC Purchasing in which EC receives a split of the charges received by the delivery carriers and kickbacks in exchange for referring delivery services to the overnight delivery companies.

The lawsuit also states that because Fidelity exercises substantial control over their subsidiaries that no “marketing” services were actually performed nor did Fidelity put in place mechanisms to ensure they were performed under the master agreement. The payments were alleged to be based on the volume of business referred. The defendants argued that overnight delivery fees or express services were not in the real estate business and thus RESPA and Regulation X did not apply. The Court held that the term “settlement service” as used in Regulation X included overnight delivery services and stated the congress did not explicitly provide an exemption in RESPA for overnight delivery services and because Congress did not provide for an exemption neither should the Court.

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 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;

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.”

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.

The Consumer Financial Protection BureauCFPB” and the United States Department of JusticeDOJ” formally entered into an Memorandum of Understanding AgreementMOU” 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.

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 First Multiple Listing Service Inc. 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.
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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.
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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)

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.