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Over the past few years, we have seen several cases in which borrowers challenged a lender’s captive reinsurance scheme as a violation of RESPA. This quarter, a federal court made a significant ruling on this issue. The court determined that captive reinsurance arrangements do not violate RESPA as long as the mortgage insurer pays market value for the reinsurance. The court overturned a determination by the CFPB regarding the captive insurance that had called into question the use of marketing service agreements by real estate brokerages. Other cases retrieved this quarter involve the familiar situation in which the borrower alleges a RESPA claim, but fails to provide enough factual detail to support the claim.
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RESPA CASE FROM EARLIER EDITION |
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We revisit the following case from earlier this year, in which the court determined that the wife of a borrower, who had not signed the promissory note, did qualify as a borrower for purposes of bringing a RESPA claim. Frank v. J.P. Morgan Chase Bank, No. 15-CV-05811-LB, 2016 WL 3055901 (N.D. Cal. May 31, 2016). The plaintiff and her husband owned property as husband and wife, but only the husband signed the mortgage note. After the husband passed away, the plaintiff attempted to assume the loan obligation. She asserted RESPA violations and claimed that the lender refused to communicate with her. The lender argued that the plaintiff did not have standing to bring a RESPA claim because she did not sign the note and, therefore, was not a borrower. The court held that the plaintiff was a borrower because her interest in the property was at stake, the property was owned as husband and wife, and the plaintiff was obligated under the Deed of Trust for the property. The lender’s motion to dismiss was denied. |
1. PHH Corp. v. Consumer Financial Protection Bureau, No. 839 F. 3d 1 (D.C. Cir. Oct. 11, 2016)
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Captive reinsurance agreements are not prohibited under RESPA as long as the mortgage insurance companies do not pay more than reasonable market value to the reinsurers for services actually performed. |
PHH is a mortgage lender. In some circumstances, it requires borrowers to obtain mortgage insurance. Under a captive reinsurance arrangement, PHH created a subsidiary that provided reinsurance to mortgage insurers, and PHH often referred borrowers to insurers that used the subsidiary’s reinsurance. In an enforcement action, the Consumer Financial Protection Bureau determined that PHH’s captive reinsurance arrangements violated RESPA’s anti-kickback provisions. PHH appealed this enforcement action to the federal court.
Although referral fees are disallowed under RESPA, the court concluded that if the payment was made for the reasonable market value of services actually provided, it is a bona fide payment. Captive reinsurance arrangements do not violate RESPA if they involve a bona fide payment. The court remanded the case to the Consumer Financial Protection Bureau for a determination of whether the mortgage insurers paid more than reasonable market value to the reinsurer. The case is now on en banc review before the full D.C. Circuit.
2. Masoud v. J.P. Morgan Chase Bank, No. 15-CV-2523-L-JMA, 2016 WL 5719832 (S.D. Cal. Sept. 30, 2016)
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Statute of limitations prevented borrower’s lawsuit alleging that lender and servicers made misleading payments between them that were designed to create a windfall. |
A borrower alleged that the lender and mortgage servicers made payments between them that were “misleading and designed to create a windfall.” The facts underlying the cause of action occurred in 2005. The statute of limitations for RESPA claims involving improper payments or kickbacks is one year. Thus, the claim was barred by the statute of limitations. The court dismissed the claim.
3. Suruki v. Ocwen Loan Servicing, LLC, No. 15-CV-00773, 2016 WL 7178549 (N.D. Cal. Dec. 8, 2016)
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Borrower failed to provide facts to show that the lender and servicers received fees for services that were not actually performed. |
A borrower alleged that the lender and mortgage servicer defendants “accepted charges for the rendering of real estate services which were in fact charges for other than services actually performed.” The borrower failed to provide sufficient facts to support those allegations. The court dismissed the claims.
B. Statutes and Regulations
Alabama
The Alabama Real Estate Commission modified its regulations regarding closing statements. A licensee is no longer required to provide the actual, detailed closing statement to the buyer and the seller at the time of closing.[1] However, the licensee must still provide an estimated closing statement to the parties.
Utah
Regulation amendments in Utah state that an inducement gift is permissible if the principal broker or licensee offering the gift complies with underwriting guidelines that apply to the loan.[2] Closing gifts are permissible.
C. Volume of Materials Retrieved
RESPA issues were identified 42 times in 34 cases (see Table 1). The cases overwhelmingly involved kickbacks, but also addressed disclosure of settlement costs and affiliated business arrangements (see Table 2). The volume of cases was very similar to 2015 (see Table 4). One statute and one regulation addressing RESPA issues were also retrieved this year (see Tables 1, 6).
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