Boulware v. Crossland Mortgage Corp.: Federal Court Rules that RESPA Is Not a Price Control Statute

A federal appeals court has considered whether section 8(b) of the Real Estate Settlement Procedures Act ("RESPA") is a price control statute or a prohibition on unauthorized kickbacks to third parties.

Tyna Boulware ("Borrower") received a federally insured home mortgage loan from Crossland Mortgage Corporation ("Lender"). As part of the loan process, the Lender charged the Borrower $65 for obtaining a copy of the Borrower's credit report from a third party. The Lender's actual costs for obtaining the credit report were $15. The Borrower filed a lawsuit alleging the Lender's retention of the extra $50 violated RESPA because the Lender performed no additional services to justify this charge. The Borrower sought to have her lawsuit converted to a class-action lawsuit on behalf of others charged similar fees by the Lender. The trial court ruled in favor of the Lender, and the Borrower appealed.

The United States Court of Appeals, Fourth Circuit, affirmed the trial court's ruling in favor of the Lender. The court first looked at the language of section 8(b) of RESPA. Congress created RESPA to protect home buyers "from unnecessarily high settlement charges caused by certain abusive practices," specifically, the payment of kickbacks or referral fees. Section 8(b) prohibits the both the payment and receipt of "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."

Looking at the language of section 8(b), the court found that the section only prohibited overcharges when the payment is split with a third party. Since the Lender did not share the $50 with any third party, the payment did not violate RESPA. The court ruled that RESPA only prohibits kickbacks or the splitting of payments with third parties, not simple overcharges. The court found that its interpretation of RESPA was in agreement with the only other federal appellate court to consider the issue (see Echevarria v. Chi. Title & Trust Co., 256 F.3d 623 (7th Cir. 2001)). The court further rejected the Borrower's argument that her interpretation of RESPA's language conflicted with section 8(a), as that section prohibits kickbacks for referrals while section 8(b) prohibited the splitting of payments when no service was provided.

The United States Department of Housing and Urban Development ("HUD") filed a brief in support of the Borrower's position. HUD has created policy statements which supported the Borrower's interpretation of section 8(b). HUD urged the court to adopt the rationale of its policy statements. The court rejected HUD's position, ruling that the statutory language controlled the court's decision, not HUD's policy statements. Since the language of section 8(b) was unambiguous, the court would enforce the statute as written.

The court also found that the Borrower and HUD's interpretation of RESPA's section 8(b) would undermine the very purpose of the statute. Under their interpretation of the statute, as described above, a consumer could be liable for paying unearned fees such as the payment made by the Borrower to the Lender, since the statute allows for the punishment for the payment of such a fee. Since the statute is designed to protect consumers, the court found it would make little sense if the group RESPA was designed to protect could be punished under the statute for making such a payment. The court ruled that HUD's proclamation that it would never prosecute a consumer failed to rectify the conflict in HUD and the Borrower's interpretation of section 8(b). Thus, the court rejected the Borrower and HUD's interpretation of the statute and affirmed the trial court.

Boulware v. Crossland Mortgage Corp., 291 F.3d 261 (4th Cir. 2002).