Articles Posted in RESPA SECTION 8: ILLEGAL KICKBACKS & REFERRAL FEES

Today, the Consumer Financial Protection Bureau (CFPB) announced it has rescinded the highly controversial Compliance Bulletin 2015-05, “RESPA Compliance And Marketing Services Agreements” and issued new  the Real Estate Settlement Procedures Act (RESPA) guidance on Section 8 on the topics of “Gifts and Promotional Activities” and “Marketing Services Agreements“.  The rescission of Compliance Bulletin 2015-05 clears up the widespread confusion that former CFPB Director Richard Cordray created when he issued the MSA bulletin.  The CFPB’s Brian Schneider wrote the “CFPB provides clearer rules of the road for RESPA marketing service agreements” on the Bureau’s blog “[I]n order to provide clearer rules of the road and promote a culture of compliance, the Bureau is publishing guidance in the form of Frequently Asked Questions (FAQs) on the RESPA Section 8 topics.  The FAQs provide an overview of certain provisions of RESPA Section 8 and respective Regulation X sections,  and addresses the application of certain provisions to common scenarios described in Bureau inquiries involving gifts and promotional activities, and marketing services agreements (MSAs).”

Schneider wrote “the Bureau determined that Compliance Bulletin 2015-05, Compliance and Marketing Services Agreements, does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X and therefore is rescinding it.  The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal.  Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented.  MSAs remain subject to scrutiny, and we remain committed to vigorous enforcement of RESPA Section 8.”

One of the biggest takeaways in the MSA guidance is in the Bureau’s use of a real estate agent entering into a MSA agreement with a lender.  In the past MSAs where lenders entered into MSAs with individual real estate agents or real estate teams was considered off limits due to the direct consumer interaction that real estate agents and real estate agent teams had so MSAs were largely limited to real estate brokerages since this was seen as a business to business arrangement due to the brokerages limited interaction with consumers.

Marx Sterbcow will provide a RESPA Compliance and CFPB Update at the Minnesota Land Title Association “MLTA” 2020 Spring Conference at the Marriott Minneapolis Northwest hotel on Monday, April 6, 2020 from 10:15 to 11:15 AM.  The session will first focus on the “Do’s and Don’ts of the Real Estate Settlement Procedures Act (RESPA)” covering such topics as marketing services agreements, affiliated business arrangements, real estate lead generation program compliance, referrals and gifts.  The second part of the presentation will discuss the latest in Consumer Financial Protection Bureau “CFPB” enforcement trends and outlook for the coming year.

The Federal Deposit Insurance CorporationFDIC” on November 30, 2019 entered into a Consent Order FDIC-18-0142k which ordered HomeStreet Bank, a Seattle, Washington based bank to pay a civil money penalty of $1.35 million dollars.  The FDIC alleged that HomeStreet Bank’s now discontinued Home Loan Center-based mortgage banking business line violated Real Estate Settlement Procedures Act, 12 U.S.C. § 2607, and its implementing regulation, Regulation X, 12 C.F.R. Part 1024, by entering into certain co-marketing agreements using online platforms and desk rental agreements which resulted in the payment of fees to real estate brokers and home builders for their referrals of mortgage loan business.  The FDIC also stated that all of HomeStreet Bank’s agreements with those real estate brokers and home builders have been terminated.

The FDIC’s Consent Order stated that HomeStreet Bank entered into the settlement without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation.

Unfortunately though, the FDIC’s Consent Order did not provide any industry guidance on what it found objectionable in the co-marketing agreements using online platforms or the desk rental agreements.  The Sterbcow Law Group hopes the FDIC will in the future provide more detail in its enforcement actions in order to help provide more clarity to the real estate and mortgage industry.

Marx Sterbcow with the Sterbcow Law Group’s RESPA Law Resource Center has been invited to speak at the Real Estate Settlement Providers Organization’s “RESPRO” 26th Annual Conference in New Orleans, Louisiana on March 27, 2019 at 8:45 AM at the Ritz Carlton Hotel’s Carrollton Ballroom.  The presentation “Whither the CFPB: State Unfair Deceptive Abusive Acts Practices, Regulatory and Private Sector Compliance Issues, Activities and Requirements” will review the most recent federal and state mortgage, title insurance, and real estate brokerage regulatory actions.”  The session will discuss how the Consumer Financial Protection Bureau and various state mortgage and title insurance regulatory agencies are interpreting UDAAP/RESPA.  The session will also discuss what compliance expectations the CFPB’s Enforcement division will have when a company is under investigation and the general outlook of what is going on or not going on at the CFPB.  The presentation will hit on issues involving private sector mortgage lending compliance involving Affiliated Business Arrangements and those how those expectations extend to class action mitigation risks.

Charles “Chuck” Cain from Cincinnati, Ohio (Executive Vice President Agency at WFG and Of Counsel to the Sterbcow Law Group) and Francis “Trip” Riley from Princeton, New Jersey (Partner with Saul Ewing Arnstein & Lehr, LLP) will co-present with Mr. Sterbcow in this session.

Marx Sterbcow of the Sterbcow Law Group has been invited to speak at the American Land Title Association’sALTA Large Agent Conference at the Boca Raton Resort & Club in Boca Raton, Florida on Tuesday, January 15, 2019.  ALTA’s Large Agent Conference is January 13-15, 2019.

The presentation “RESPA UPDATES” will discuss a variety of topics from the latest on RESPA Enforcement by the Consumer Financial Protection Bureau “CFPB” to how the new political landscape in Washington, D.C. may put the CFPB’s current enforcement ideology in the spotlight.  The presentation will also provide the latest RESPA Best Practices tips involving: advertising services agreements & marketing agreements, co-branded website advertising, advertising & marketing practices, title agency affiliated business arrangements, title joint ventures, office leases, and the challenges involved with many lead generation programs.  Craig Haskins, the Chief Operating Officer, of Knight Barry Title, Inc. headquartered in Wisconsin will moderate the RESPA UPDATES session.

Marx Sterbcow of the Sterbcow Law Group will present at the Escrow Institute of California’s 70th Anniversary Conference  at the Hyatt Regency Indian Wells Resort & Spa in Palm Springs, California on May 5, 2017.  The Escrow Institute of California “EIC” Annual Conference is May 4-6, 2017.

The session “Understanding CFPB Enforcement under Unfair Deceptive or Abusive Acts or Practices (UDAAP)” is from 10:15 – 11:45 AM.  Mr. Sterbcow is co-presenting with Matthew Davis with the Davis & Davis Law Group.

Marx Sterbcow, Managing Attorney, of the Sterbcow Law Group will present in two sessions at the 2017 Real Estate Service Providers Council “RESPRO” Annual Conference at the Bellagio Hotel in Las Vegas, Nevada on April 19, 2017.  The RESPRO Conference is from April 18-20, 2017.

The first session “Unfair Deceptive Abusive Acts Practices UDAAP: The Cloud Still Hangs Low” is from 1:30 PM– 2:30 PM in the DaVinci 3 Ballroom. Mr. Sterbcow is co-presenting with Francis (Trip) Riley with Saul Ewing. The presentation will focus on how UDAPP will continue to effect CFPB’s actions on settlement service providers and how RESPA regulated Affiliated Business Arrangements (AfBAs) need to be cognizant of their marketing and advertising efforts. We will address cases of interest and suggest tips that every company should incorporate.

The second session “RESPA: Stretching the Envelope on Prohibited Referrals” is from 2:45 PM – 3:45 PM in the DaVinci 3 Ballroom.  Mr. Sterbcow is co-presenting with Stan Gordon with Gordon & Associates and Francis (Trip) Riley with Saul Ewing.  The presentation will focus on the basic parameters of what is prohibited referral activity have expanded under CFPB which has resulted in a chilling effect on the financial settlement service industry.  The ambiguity in RESPA on defining a referral and the perceived risks in marketing activities in various circumstances will be discussed.  The presentation will provide some clarifications on when an endorsement of a service provider becomes a prohibited referral.  The session will also address whether it is a violation of Section 8 for a nationwide real estate brokerage group to promote a service provider throughout its owned or affiliated companies to their management and sales agents.  How considerations under PHH and RESPA exception Section 8(c)(2) need to be considered and is the exception absolute as implied by the current ruling.

The Legal Description and Dodd Frank Update have teamed up again to provide their 5th annual Regulatory Outlook Webinar on Wednesday, January 18, 2017 (2:00 – 3:30 P.M. EST) educating mortgage, title and settlement services professionals on the compliance trends and issues to expect in the New Year.  The yearly webinar series has quickly become one of the most important educational sessions each year to find out what in store for the State of the Settlement Service Industry in the coming year.

This webinar features instructors Francis “Trip” Riley of Saul Ewing, Loretta Salzano of Franzén and Salzano, and Marx Sterbcow of the Sterbcow Law Group. These nationally-recognized attorneys will join moderator Danielle Kaiser of NATIC in a discussion of the pressing political, regulatory and compliance issues to watch in 2017 and how to prepare your business.

Instruction will include:

Marx Sterbcow, the Managing Attorney, of the Sterbcow Law Group, and Charles Cain, Vice President, Agency, WFG National Title Insurance Co. will present at the 2016 National Settlement Services Summit [NS3] at the Le Meridien & Sheraton Hotel in Charlotte, North Carolina on Wednesday, June 8, 2016.

The session titled “Ethics: UDAAP, Reverse Vendor Oversight and Legal Malpractice” will discuss how Title agents and attorneys are expected to adhere to the highest ethical standards, and how Dodd Frank’s ban on Unfair, Deceptive or Abusive Acts or Practices (UDAAP) have given the CFPB broad authority to root out questionable activities. Learn how UDAAP is requiring agents to gear up when it comes to ethical conduct, particularly in the area of RESPA compliance. The presentation will explain how UDAAP could make vendor management liability and oversight a two-way street through a new enforcement tactic known as “Reverse Vendor Management Oversight”. Reverse Vendor Management Oversight could challenge the bounds of legal malpractice by requiring title agents, lawyers, and attorney notaries to be on the lookout for vendor compliance issues with their clients. Speakers will share real-world examples, and attendees will walk away with actionable tips for remaining UDAAP compliant in an increasingly active RESPA and UDAAP enforcement environment.

October Research Corporation has generously offered a Discount Code to attend NS3 for all friends and clients of the Sterbcow Law Group. To receive your Discount Code please contact the Sterbcow Law Group and we will send you the special discounted rate code to attend NS3.

A consumer class action RESPA lawsuit was filed on November 25, 2015 by Timothy L. Strader Sr., against PHH Corporation, REALOGY Holdings Corp., PHH Mortgage Corporation, PHH Home Loans LLC, RMR Financial LLC, NE Moves Mortgage LLC, PHH Broker Partner Corporation, REALOGY GROUP LLC, REALOGY Intermediate Holdings, Title Resources Group LLC, West Coast Escrow Company, TRG Services Escrow Inc., NRT LLC, REALOGY Services Group LLC, and REALOGY Services Venture Partner LLC in United States District Court for the Central District of California. (Case No. 8:15-CV-1973).

The allegations in this consumer class action lawsuit largely surround issues involving violations of Section 8(a) and Section 8(c)(4) of the Real Estate Settlement Procedures Act of 1974, as amended, 12 U.S.C. §§ 2601 et seq (“RESPA”), and its implementing regulations, 12 C.F.R. §§ 1024.1 et seq. (“Regulation X”). RESPA – and, in particular, the prohibition on referral fees and kickbacks in 12 U.S.C. § 2607 – was explicitly designed to protect consumers “from unnecessarily high settlement charges caused by certain abusive practices,” such as those described in this Complaint. 12 U.S.C. § 2601(a). As such, 12 U.S.C. § 2607(a) prohibits the giving or accepting of any “fee,” “kickback,” or “thing of value” in exchange for business incident to or part of a “settlement service” (as those terms are defined in RESPA and Regulation X) involving a federally related mortgage loan.

The complaints states the Defendants violated RESPA and distorted the market for title insurance and other settlement services in at least two different manners:

First, PHH and Realogy created an affiliated business arrangement called PHH Home Loans, which the Plaintiffs contend was a sham joint venture carefully engineered to facilitate and disguise the payment of unlawful referral fees and kickbacks in exchange for the referral of title insurance and other settlement services to Realogy’s subsidiary, Title Resource Group (“TRG”). The allegations further state that prior to October 21, 2015, PHH was bound under a Strategic Relationship Agreement to refer all title insurance and settlement services to TRG. The consumers referred by PHH Home Loans paid approximately $1650 to TRG for title insurance and other settlement services. If this allegation is accurate it would violate Section 8(c)(4) under RESPA* which prohibits the “Required Use” of an affiliate if the consumer paid for those services.

Pursuant to the Strategic Relationship Agreement, PHH Home Loans is the exclusively recommended mortgage lender for Realogy’s real estate brokerage network, which is operated by NRT, LLC (which operates such brands as Coldwell Banker, Sotheby’s International Realty, ZipRealty, The Corcoran Group, and Citi Habitats.

The Plaintiffs also state that PHH receives a right of first refusal for the purchase of the mortgage servicing rights for PHH Home Loans originated mortgages, which permit PHH Home Loans to sell the servicing rights to PHH “on terms no less favorable” than those that could be obtained from an independent third party and that PHH owns a disproportionate share of the servicing rights for those mortgages relative to PHH’s overall market share of residential mortgage servicing. The complaints states that the details of this relationship have not been publicly disclosed to consumers.

Second, the Plaintiffs allege that under a related Private Label Solutions (“PLS”) model–in which PHH manages all aspects of the mortgage process for various large banking institutions that PHH directs the PLS Partners to refer title insurance and other settlement services to TRG without disclosing to consumers the existence of PHH’s affiliation with TRG, nor the fact that PHH was required to cause the PLS Partners to refer title insurance and other settlement services to TRG under the terms of the Strategic Relationship Agreement.

The complaint further states that the undisclosed mandatory referral arrangement existed for over 10 years until October 21, 2015, when PHH and Realogy amended the Strategic Relationship Agreement to delete the mandatory referral provision. PHH filed their latest Form 10-Q with the SEC on November 5, 2015 and based on the exhibits it did not include the mandatory referral provision language. The Plaintiffs contend the reason that PHH deleted this provision is due to the Consumer Financial Protection Bureau v. PHH Corporation enforcement action where the CFPB fined PHH $109 million dollars for its relationship with Atrium Reinsurance Corporation, an affiliate of PHH.

This is a RESPA class action case worth monitoring given the allegations, parties involved, and the CFPB’s related case against Atrium now pending in Federal District Court. Judge Fernando M. Olguin is presiding over the case.

If you have any questions about how your company’s affiliated businesses are structured please contact us to set up a consultation.
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