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Read the full decision: Baehr v. Creig Northrop Team, P.C.
Maryland federal court rules that the homebuyers failed to demonstrate standing to bring the RESPA action and also could not equitably toll RESPA’s statute of limitations in a lawsuit brought against a real estate brokerage over alleged kickbacks from a marketing services agreement with a title company.
A married couple (“Buyers”) purchased a home and were represented in the transaction by a licensee (“Salesperson”) who worked on a real estate team (“Team”). The Team had entered into a marketing services agreement (“MSA”) with a title company (“Title Company”). In return for the Team providing marketing services and designating the Title Company as its “exclusive preferred settlement and title company”, the Title Company agreed to pay the Team a monthly flat fee.
As the Buyers began working the Salesperson, they received various disclosures from the Team and its brokerage, including an Affiliated Business Relationship (“ABR”) disclosure that is required under RESPA when the brokerage holds an ownership interest in another settlement service provider. The ABR did not disclose the marketing relationship between the Team and the Title Company.
The Salesperson helped the Buyers sell their current home and purchase a new home. As part of the closing processes, the Buyers knew they needed to select a title company and they also knew they were free to choose the title company. Nevertheless, the Buyers allowed the Salesperson to refer the closings to the Title Company without asking questions. Both transactions closed successfully, and the Buyers testified that they were satisfied with the services of the Title Company and believed the amount paid to the title company was fair.
Over four years following their purchase, the Buyers received a letter from an attorney stating that they may have a legal claim for payments made in violation of the Real Estate Settlement Procedures Act (“RESPA”) because of the relationship between the Title Company and the Team. RESPA makes it illegal to give or receive a thing of value in exchange for the referral of a real estate settlement service for a federally-related mortgage. The Buyers filed a lawsuit alleging that the MSA was a sham referral agreement, where the payments were not payments for marketing services but rather for the referral of settlement services. The Buyers sought class action status for the lawsuit and the court certified the class action. The Team filed a motion seeking judgment in its favor.
The United States District Court for the District of Maryland entered judgment in favor of the Team and rejected the Buyers’ class action lawsuit. The Team argued that the lawsuit failed in two ways: first, the Buyers lacked standing to bring the lawsuit; and second, they failed to demonstrate that the RESPA one-year statute of limitations should be equitably tolled.
Standing is judicially created requirement where a party must demonstrate an injury-in-fact that is traceable to the defendant and could be remedied by a favorable judicial decision. A mere procedural violation which does not create harm is not a sufficient injury to grant standing to a party. In this instance, the Buyers had testified that they did not believe they overpaid for title insurance; instead, they argued that they were deprived of competition between settlement service providers because of the referral to the Title Company.
The court rejected the Buyers’ argument, finding there was no evidence that the Buyers were overcharged for the settlement service and therefore did not suffer any harm. Additionally, the Team and the Title Company did not have an ABR that required disclosure, since there was no ownership interest by the Team in the Title Company. Since the Buyers had failed to allege an injury-in-fact, they lacked standing to bring a RESPA lawsuit against the Team and so the court entered judgment in favor of the Team.
Next, the court ruled that the Buyers had failed to demonstrate that the RESPA one-year statute of limitations should be equitably tolled. In order to demonstrate the need for equitable tolling, a party must show that he/she has been pursuing his/her rights diligently and some extraordinary circumstance prevented timely filing. Here, the Buyers argued that the MSA was concealed from them and therefore they were unaware of the relationship until well after the closing. The court found that the Buyers had failed to exercise reasonable diligence to discover their claim, as they had made no effort to investigate their title company options during the closing and were satisfied with the services that they had received for over four years. Because the Buyers had failed to demonstrate that they were entitled to equitable toll RESPA’s statute of limitations, the court ruled that their claims were time barred and so entered judgment in favor of the Team.
Baehr v. Creig Northrop Team, P.C., No. CV RDB-13-0933, 2018 WL 6434502 (D. Md. Dec. 7, 2018). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information.]
Editor’s Note: For more information on how to properly structure a MSA, please consult the MSA “Dos and Don’ts”.