Will the Supremes Gut RESPA?
The Supreme Court intends to hear a case today that could take most of the teeth out of the Real Estate Settlement Procedures Act (“RESPA”).
In Freeman vs. Quicken Loans, SCOTUS will hear plaintiffs argue against adecision by the US Court of Appeals for the Fifth Circuit to grant summary judgment for Quicken from liability in a case where they added $5,000 in fees at closing for services that they never performed.
On its blog, Quicken Loans said that the May 2011 appeals court ruling validated their commitment to compliance with the relevant law.
Staff at the Department of Housing and Urban Development contend that “HUD consistently interpreted [RESPA] to prohibit all unearned fees, regardless of whether those fees are divided between two or more people.” They said that four types of charges were covered by RESPA:
1. Fee splitting, where two or more persons split a fee, any portion of which is unearned;
2. Mark-ups, where a service provider charges the borrower for services performed by a third party in excess of the cost of the services to the service provider but keeps the excess itself;
3. Undivided unearned fees, where a service provider charges the borrower a fee for which no correlative service is performed; and
4. Overcharges, where a service provider charges a borrower for services actually performed but in excess of the service’s reasonable value.
An earlier decision by a lower court said that Quicken was not liable because the additional fees were not split, nor were they made up of a kickback. Thus, there are two relevant elements. The first says that there can be no kickbacks among banks, mortgage brokers, and real estate agents. The second says that “No person shall give and no person shall accept any portion, split, or percentage of a charge made or received for the rendering of a real estate settlement service.”
The essential facts of the case – Quicken charged borrowers fees for services that they did not provide – were not disputed.
If there was room for interpretation, then the Appeals Court drove a truck right through it.
The appellate court said that RESPA would only apply if the money was split between two parties. In this case, since Quicken took all of the extra money, they said that RESPA would not apply. Thus, it depends on how “any portion” and any “percentage of a charge” must be calcuted. If 100 percent constitutes a valid portion or a percentage, then RESPA applies. If that share is not within the intended definition for RESPA, then it doesn’t.
The borrowers (the Freemans, the Bennetts, and the Smiths) said that they were charged a loan origination fee, a loan discount fee, and a loan processing fee. Two of the plaintiffs said that the loan discount fee should only be charged if there was a corresponding drop in the interest rate – a service that they were not granted. The Smiths said that the loan origination fee was a duplication of the loan processing fee.
