Share
In Bloom v. Martin, several borrowers (Borrowers) brought a class action suit against mortgage lenders alleging violations of the Real Estate Settlement Procedures Act of 1974 (RESPA). The Ninth Circuit affirmed the district court's decision that RESPA did not cover demand and reconveyance fees.
The Borrowers brought a class action suit claiming that mortgage lenders violated the RESPA by failing to disclose the assessment of demand and reconveyance fees. These fees were charged by some lenders in connection with preparing statements of the amount owed to prepay a loan and for reconveying the deed to the mortgagor.
The district court dismissed the complaint, concluding that RESPA did not apply to demand and reconveyance fees and that 12 U.S.C. 2603, which mandated the creation and use of a standard form (HUD-1) for disclosing costs incurred by the buyer and seller at settlement, did not create a private right of action to enforce its provisions. The Borrowers appealed.
The Ninth Circuit limited its review to the question of whether demand or reconveyance fees or other fees of that type were intended to be included under the required RESPA disclosure. The RESPA regulations provide for two separate disclosures of the charges imposed upon the borrower and seller in connection with settlement. The HUD-1 form and the "good faith estimate" are the two vehicles for accomplishing this disclosure. The HUD-1 form is a standard form that must be used in every settlement involving a federally-related mortgage loan. It discloses the settlement charges that will be assessed to both the buyers and the sellers. The court found two points significant in reaching its decision. First, the HUD-1 does not expressly refer to either reconveyance and demand fees among the fees listed thereon. Second, the seller's costs, which must be listed in HUD-1 and the good faith estimate, are defined in the regulation as those payable to the broker, settlement agent, or other parties at or before settlement based upon common practice. These charges do not specifically refer to the demand and reconveyance fees.
In its analysis of this language, the Ninth Circuit found that the disclosure requirement was not intended to apply to costs paid by property owners after the settlement at which they bought the property. Thus, having determined the district court was correct in its decision with regard to the applicability of RESPA to demand and reconveyance fees, the Ninth Circuit affirmed that decision.
Bloom v. Martin, 77 F.3d 318 (9th Cir. 1996).