Over the past few quarters, a number of cases have raised the same issue with respect to captive insurance schemes and the statute of limitations – whether the alleged RESPA violation occurred only at the time of the transaction, or whether each payment of an insurance premium constituted an independent violation. One of the cases below considered this issue. In the other case, the court concluded that a title insurance referral scheme did not violate RESPA because it fit the definition of an affiliated business arrangement.
1. Consumer Financial Protection Bureau v. Borders & Borders, PLC, No. 3:13-CV-01047-CRS-DW, 2017 WL 2989183 (W.D. Ky. July 13, 2017)
Relationship between law firm and LLCs providing title insurance fell within RESPA’s affiliated business relationship exception.
Borders & Borders is a law firm that primarily performed real estate closings, and was authorized to issue title insurance policies for several insurance companies. The firm created joint ventures (LLCs) with nine real estate services providers to provide title insurance. When Borders & Borders closed on a real estate transaction, the firm referred the title insurance underwriting to the LLC affiliated with the real estate representative involved in the transaction. This relationship between the law firm, real estate representative, and the title insurance LLC was disclosed to the buyers.
The Consumer Financial Protection Bureau argued that this relationship violated RESPA Section 8(a), which prohibits the giving and receiving of fees and kickbacks in connection with mortgages. The court concluded the Bureau established a violation of RESPA because there was an agreement to refer business, referral fees were paid, and the transactions involved federally regulated mortgage loans. However, because Borders & Borders disclosed the relationship with the LLCs, the Bureau did not show that the Title LLCs received anything of value beyond their ownership interests, and the customers could reject the referral, the arrangement qualified as an “affiliated business relationship.” An affiliated business relationship constitutes an exception permitted under RESPA’s safe harbor provisions for relationships disclosed to the consumer. Because the relationship fell within the affiliated business relationship exception, the court granted summary judgment for Borders & Borders.
RESPA claim based on captive reinsurance scheme was barred by the statute of limitations.
2. Illinois ex rel. Hammer v. Twin Rivers Ins. Co., No. 16C7371, 2017 WL 2880899 (N.D. Ill. July 5, 2017)
Triad sold private mortgage insurance (PMI). It had an agreement with Twin Rivers Insurance Company under which Twin Rivers reinsured the PMI policies issued by Triad on mortgages originated by banks affiliated with Twin Rivers. In turn, the banks referred customers to Triad. In rehabilitation proceedings, Triad’s rehabilitator sought a declaration that this captive reinsurance scheme violated the anti-kickback prohibitions of RESPA.
Triad’s claim was barred by the statute of limitations. Triad stopped selling private mortgage insurance in 2008. The court concluded that there was no separate violation for each insurance premium payment paid by Twin Rivers. Rather, there was a single violation of RESPA at the time of the original transaction. The court granted defendant’s motion to dismiss the claim.
B. Statutes and Regulations
No RESPA statutes or regulations were retrieved this quarter.
C. Volume of Materials Retrieved
RESPA issues were identified 9 times in 6 cases (see Tables 1, 2). Kickbacks and Affiliated Business Arrangements were the most frequently addressed issues.