As in prior quarters, most of the RESPA cases in this edition deal with possible kickbacks.
1. Edwards v. The First American Corp., 798 F.3d 1172 (9th Cir. 2015)
Suit alleging kickback scheme by which title insurer purchased a minority interest in a title agency and title agency agreed to refer business to the title insurer could proceed as a class action.
Home purchaser sued title insurance company and its wholly owned subsidiary. The title insurance company engaged in transactions with various title agencies in which it paid money to the title agency in exchange for a minority interest of the agency and the title agency’s agreement to refer business to the title insurer. Purchaser alleged these agreements constituted a kickback scheme in violation of RESPA. Purchaser sought to bring a class action on behalf of the home buyers who obtained a mortgage using one of the title agencies where the title insurance company was an investor.
In this decision, the appellate court held purchasers could pursue a class action because the title insurer used the same scheme in various transactions throughout the country. The court also stated that a referral may violate RESPA, even if it is not the main influence on a home buyer’s decision to hire the entity. The case was remanded to the lower court to determine class certification.
2. Hutter v. Countrywide Bank, N.A., No. 09-cv-10092 (NSR), 2015 WL 5439086 (S.D.N.Y. Sept. 14, 2015)
Because a mortgage broker performed legitimate services in connection with a loan transaction, there was no kickback under RESPA.
A borrower claimed that kickbacks and unearned fees were paid to a mortgage broker in violation of RESPA. The borrower alleged that the bank paid a fee to the mortgage broker as part of a referral agreement. The borrower also said that the mortgage broker accepted a processing fee for services it did not actually perform. But the evidence showed that the mortgage broker did perform services, and the borrower did not prove that the services were not legitimate. The court dismissed the borrower’s RESPA claims.
3. In re Community Bank of Northern Virginia Mortgage Lending Practices Litig., 795 F. 3d 380 (3d Cir. 2015)
Because an alleged kickback scheme used consistent documentation for each borrower, the borrowers’ lawsuit could become a class action.
A group of borrowers claimed that a mortgage lending scheme violated RESPA’s anti-kickback and affiliated business arrangement rules. The lawsuit alleged that a residential mortgage loan company created a scheme which involved many different entities, including banks, mortgage service companies, guaranty companies, and title companies. In an attempt to avoid regulatory scrutiny, money was funneled from two banks, through the mortgage services companies, to the mortgage lending company. Under this alleged scheme, fees paid for settlement services were received by the mortgage services companies, even though those entities did not provide settlement services. Defendants appeal the district court’s certification of a nationwide class action.
Defendants argued that a number of individual issues predominated over the common issues, including a determination of the actions taken by each plaintiff in discovering the alleged scheme. Because defendants engaged in a common scheme with the same documentation, and because the allegations state that the conduct of the entities who received fees was the same with respect to each plaintiff, the court found that the RESPA violations could be proven with common evidence. Therefore, a class action could be appropriate.
4. Merritt v. Countrywide Financial Corp., No. 09-CV-01179, 2015 WL 5542992 (N.D. Cal. Sept. 17, 2015)
An appraiser did not inflate the value of a home, so the borrowers did not have a valid RESPA claim.
The borrowers claimed that various parties, including the appraiser and lender, acted together in a conspiracy to place borrowers in a subprime loan in violation of RESPA. The borrowers obtained a loan for $10,000 more than the agreed-upon price for the home so they could use the $10,000 for flooring. The borrowers hired an appraiser suggested by the seller’s representative. The borrowers alleged that the licensee and the appraiser agreed that the licensee would refer future business to the appraiser if he inflated the value of the borrowers’ property. The court determined the appraiser did not inflate the value of the home and there was no conspiracy.
5. White v. JRHBW Realty, Inc., No. 2:14-cv-01436-RDP, 2015 WL 5470245 (N.D. Ala. Sept. 16, 2015)
Referrals between a broker and a title insurance company owned by the same parent company did not create an improper kickback scheme.
A broker was owned by the same parent company as the title insurance company for the disputed transaction. The buyer claimed that the seller’s broker’s referral of business to the title insurer violated RESPA’s anti-kickback provision. The buyer also alleged that the broker paid extra commissions when business was referred to the title insurer. The court found no evidence of payment of a “thing of value” to or by the title insurer. The shared corporate parent did not create a connection between a “thing of value” and the referral of business. Buyer also alleged an improper affiliated business arrangement. But the buyer received an ABA Disclosure Form from the broker, which disclosed the affiliated business arrangement with the title insurer. This disclosure put the title insurer in the RESPA safe harbor.
B. Statutes and Regulations
No RESPA statutes or regulations were retrieved this quarter.
C. Volume of Materials Retrieved
RESPA issues were identified fifteen times in twelve cases (see Table 1). The majority of the cases addressed alleged kickback schemes, but Affiliated Business Arrangements and other issues were identified (see Table 2).