RESPA: 2Q 2015

A. Cases

A series of second-quarter RESPA cases dealt with kickbacks, while a Montana court upheld a large judgment against a lender over disclosure issues. A federal court limited a broker’s ability to make a counter-claim in a RESPA case. Two of the cases discussed here are ongoing matters. 

1. Munoz v. PHH Corp., 2015 U.S. Dist. LEXIS 67226 (U.S. District Court, Eastern District of California May 22, 2015); 2015 U.S. Dist. LEXIS 75960 (E.D. Cal. June 11, 2015)

A class action against a lender for RESPA kickback violations was allowed to proceed, but the court denied a request by other borrowers to join the suit.

In a long-standing case we’ve looked at before, borrowers claimed that a lender violated RESPA when it required them to buy private mortgage insurance from certain insurers. Those insurers were then required to buy reinsurance from a subsidiary of the lender. The lender objected to the recommendation that the suit be certified as a class action, but those objections were overruled. Since the borrowers’ claims had the same factual and legal basis, the borrowers were properly certified as a class.

One borrower requested permission from the court to join the suit, even though she did not bring her claim within one year of obtaining her loan as required by RESPA. The court denied her request, because the court had previously ruled that the disclosures about mortgage insurance in the loan documents gave borrowers notice of their claims.

2. Wesolowski v. Title Source, Inc., 2015 U.S. App. LEXIS 5544 (11th Cir. Apr. 7, 2015)

There is no RESPA violation when services are actually performed, even if the service provider was not authorized by state law to provide those services.

Borrowers sued the company that provided closing services for their home refinance. Borrowers claimed that the company violated the anti-kickback provisions of RESPA, because state law said that only licensed attorneys could perform closing services. The court held that RESPA was not violated if the services were actually performed, even if state law said that the provider was not allowed to perform those services. The court granted the company’s motion for summary judgment, and denied a motion for summary judgment brought by the company’s in-house counsel, holding that there was a genuine issue as to whether she actually performed services.

3. Spears v. First American eAppraiseIT, 2015 U.S. Dist. LEXIS 57530, 2015 U.S. Dist. LEXIS 57257 (U.S. District Court, Northern District of California April 27, 2015)

The court approved a final settlement agreement of over $10 million in a class action suit for RESPA violations.

Spears is a class action suit brought on behalf of all consumers who obtained mortgages from Washington Mutual on or after June 1, 2006. The borrowers claimed that an appraisal company, eAppraiseIT, used inflated appraisals of their property to support mortgages they were granted by a lender, Washington Mutual. The appraisal company and the borrowers reached a settlement of the claims. The settlement calls for the parent company of the appraisal company to deposit $9,863,945 into a settlement fund. The borrowers will receive a proportionate share of the settlement fund. Borrowers who paid their own appraisal fees will receive three times their proportionate share. The appraisal company is no longer operating, and the money will be paid into the fund by the appraisal company’s parent company. Neither the appraisal company nor its parent admitted any wrongdoing.

4. McCulley v. U.S. Bank, 378 Mont. 462, 347 P.3d 247 (2015)

The court upheld a jury verdict of $1 million in compensatory damages and $5 million for punitive damages in a fraud case against a lender.

In McCulley, the borrower applied for a $300,000, 30-year mortgage to purchase a residential condominium. The lender noted that the property was built on land zoned commercial, so the lender approved an 18-month commercial mortgage without telling the borrower. The lender knew that borrower would not be able to repay the commercial loan. The Good Faith Estimate prepared by the lender showed a 30-year mortgage, but the borrower ended up signing papers for the 18-month commercial mortgage without understanding what she was signing. The borrower was unable to refinance the property after the commercial loan was due, and she lost the condominium. At trial, the borrower showed evidence of emotional distress caused by the lender’s actions. The jury awarded $1 million in compensatory damages and $5 in million punitive damages. The damage award was upheld on appeal. A successor bank that had taken over the lender was liable for the verdict because it acquired the original lender’s liabilities.

5. Baehr v. Creig Northrop Team, P.C., No. WDQ-13-099, 2015 U.S. Dist. LEXIS 24964 (D. Md. Mar. 2, 2015)

Brokerage was not allowed to counterclaim for costs and attorney’s fees in a RESPA suit, even though the brokerage contract allowed for those costs.

This case has been going on for some time. In it, the buyers sued a brokerage under RESPA’s anti-kickback provisions, claiming that the brokerage received disguised kickbacks from a title insurance company for referring buyers to the insurer. The brokerage counterclaimed, requesting attorney’s fees and costs unless judgment was entered against it. The brokerage contract called for indemnification of the brokerage’s attorney’s fees in the event of a lawsuit arising out of the transaction, but the counterclaim was dismissed. RESPA allows a successful defendant to recover attorney’s fees only if the plaintiff’s suit was frivolous or without foundation. The contractual provision will not be read to allow recovery of fees if a lawsuit was brought in good faith. The buyers’ allegations against the brokerage for referral payments violating RESPA was brought in good faith.

B. Statutes and Regulations

One new RESPA provision stood out last quarter. New Hampshire amended its statute listing acts that will subject a licensee to discipline from the Real Estate Commission. The amendment prohibits a real-estate broker from directing a transaction to a lender, escrow company, or title company in a RESPA-prohibited manner. The broker may, however, serve as an agent for a principal “to solicit extensions of credit or to provide other services related to the purchase or sale of real estate in a manner not prohibited under RESPA, provided that if the services involve an extension of credit or are related to a loan, the agency fee is not paid by the lender.”¹⁰

C. Volume of Materials Retrieved

RESPA issues were identified in the case law nine times in seven cases. (See Table 1.) The research focused on claims arising as a result of the settlement process, rather than claims arising in the context of foreclosure. Most cases addressed Kickback issues. (See Table 2.) One state statute addressing Kickbacks and Affiliated Business Arrangements was retrieved.

¹⁰N.H. Rev. Stat. § 331-A:26(XXI) (2015).