RESPA Lawsuit Dismissed

Read the full decision: White v. JRHBW Realty, Inc., No. 2:14-CV-01436-RDP, 2015 WL 5470245 (N.D. Ala. Sept. 16, 2015), appeal granted, 2015 WL 5470245 (11th Cir. 2015)

An Alabama federal court has considered a consumer's lawsuit against an affiliated real estate brokerage and title company alleging that the consumer had not received a proper disclosure about the affiliated business relationship.

A consumer ("Buyer") contacted real estate brokerage JRHBW Realty, Inc. d/b/a RealtySouth ("Brokerage") about his interest in buying a home. A salesperson showed the Buyer a property that she had listed for sale. Following the showing, the salesperson gave the Buyer a packet of information which included a buyer's representation agreement and an "Affiliated Business Arrangement Disclosure Statement" ("Disclosure Form"). Eventually, the Buyer purchased the property. As part of the transaction, the Buyer purchased title insurance from a title company ("Title Company") affiliated with the Brokerage.

The Buyer filed a lawsuit against the Title Company alleging violations of RESPA. The Buyer alleged that the Brokerage illegally steered the Buyer to the Title Company, and the parent company of both entities benefitted financially from the referrals and so constituted illegal kickbacks in violation of RESPA. Additionally, the Buyer claimed that the Disclosure Form did not use the exact verbiage found in the RESPA regulations and therefore the section 8(c)(4) safe harbor did not apply. The Title Company filed a motion to dismiss the lawsuit.

The United States District Court for the Northern District of Alabama dismissed the Buyer's lawsuit. The court first looked at whether RESPA's anti-kickback provisions were violated. Section 8(a) of RESPA prohibits payments for referrals of real estate settlement services. However, the Buyer had only claimed that the parent company had profited from the alleged referral and so did not allege that any payment was made by the Title Company for the referral of settlement services. Therefore, the court dismissed these allegations.

Next, the court looked at whether the Title Company qualified for the affiliated business safe harbor. Section 8(c) of RESPA provides certain exemptions from RESPA's prohibitions, and section 8(c)(4) allows the referral of business between affiliated entities, so long as the following conditions are met: a disclosure is made to the consumer about the affiliated relationship and the range of charges generally made by the provider when the business is referred; the consumer is not required to use a particular service provider; and the only thing of value received, other than the permitted payments, is a return on the ownership interest or franchise relationship. In the RESPA regulations, there is also a model form for disclosing an affiliated business relationship.

The court ruled that the Disclosure Form did not have to use the exact language found in the RESPA regulations. While the Buyer did not dispute that he had received an affiliated business relationship disclosure from the Brokerage, he claimed that the Disclosure Form did not use the exact language found in the RESPA regulations and therefore the Title Company had failed to qualify for the section 8(c)(4) safe harbor. The court stated that the exact language was not required, and instead courts examine whether the requirements of section 8(c)(4) were satisfied by the disclosure. Looking at the disclosure provided by the Brokerage, the court found that the Disclosure Form contained all of the required elements- stated the affiliated relationship between the entities, identified the range of costs, and also did not require the Buyer to use a particular provider. Because the Disclosure Form contained the information required by section 8(c)(4), the Brokerage and Title Company qualified for the RESPA safe harbor and so the court dismissed the case.

White v. JRHBW Realty, Inc. , No. 2:14-CV-01436-RDP, 2015 WL 5470245 (N.D. Ala. Sept. 16, 2015), appeal granted, 2015 WL 5470245 (11th Cir. 2015).

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