RESPA Highlights: 2Q 2019

Two cases this quarter addressed a brokerage firm’s relationship with lenders and real estate service providers.  In one case, the court considered whether a defendant’s marketing program which referred homeowners to use a particular affiliated mortgage company was be a violation of RESPA’s anti-kickback provisions. In another case, the court examined the requirement that a lender make certain disclosures in connection with a single complete loss mitigation application for a borrower’s mortgage.

1. In Re Zillow Group, Inc. Securities Litig., No. C17-1387-JCC, 2019 WL 1755293 (W.D. Wash. Apr. 19, 2019)

Co-marketing program allowed agents to provide referrals to lenders in violation of RESPA.

Plaintiffs filed a putative class action against Zillow on behalf of purchasers of the company's securities, alleging violations of the Securities Exchange Act and RESPA Section 8, which prohibits giving or accepting “any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person.” Plaintiffs claimed that Zillow’s "co-marketing program" was designed to allow participating brokers to refer mortgage business to participating lenders in violation of RESPA. The complaint alleged that Zillow made a series of misleading statements regarding the company's legal compliance by failing to disclose the co-marketing program's alleged illegality, particularly after the Consumer Financial Protection Bureau launched an investigation into the program. Zillow moved to dismiss the complaint.

The court determined based on anonymous witness statements and the other allegations raised in the complaint that a reasonable inference may be made that Zillow designed the co-marketing program to allow brokers to provide referrals to lenders in violation of RESPA, and that such unlawful referrals were occurring. In addition, the court noted that there were allegations that a specific mortgage originator admitted to making mortgage referrals to lenders while using what the court could reasonably infer was the real estate company’s co-marketing program. As such, the court denied Zillow’s motion to dismiss, thus permitting plaintiffs’ claim to proceed.1

2. Barron v. Everbank, No. 1:16-CV-04595-AT-CCB, 2019 WL 1495305 (N.D. Ga. Feb. 7, 2019)

Lender is only required to comply with the required disclosures for a single complete loss mitigation application for a borrower’s mortgage.

A borrower sued a lender alleging violations of RESPA’s disclosure requirements for the lender's alleged failure to provide required disclosures upon denial of a loss-mitigation application, including the failure to state the specific reason(s) for the denial of each loan modification option, and the failure to advise the borrower of investor restrictions that led to the denial of his loss-mitigation application and the subsequent appeals of that denial. The lender sought summary judgment.

Noting that the lender is only required to comply with the required disclosures for a "single complete loss mitigation application for a borrower’s mortgage,” the court held that only plaintiff’s first loss-mitigation application falls within the protections of those required disclosures. As such, the court found that the lender provided the required rationale for its denial in its response to the borrower's first loss-mitigation application. The court granted summary judgment in favor of the lender.

Statutes and Regulations

No RESPA statutes or regulations were retrieved this quarter.

Volume of Materials Retrieved

RESPA issues were identified in six cases (see Tables 1, 2).  No RESPA legislation was retrieved this quarter.

1. This case has not yet been resolved.

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State Law Based Changes

Read a summary of this quarter's additions to the State Law Based Changes.