|May 28, 2013|
Previously published on May 24, 2013
The CFPB recently settled an enforcement action against a homebuilder who had allegedly received illegal referral fees through affiliated business arrangements in violation of the Real Estate Settlement Procedures Act.
The builder and a local bank jointly created and owned another entity that they claimed to be a mortgage originator. That same builder, along with a mortgage company, also jointly created and owned another mortgage company. The CFPB alleged, however, that both entities were mere shams designed to allow the builder to receive certain kickbacks. Specifically, the homebuilder would refer mortgage origination business to such entities, but the actual work relating to such mortgages was performed by the
pre-existing bank and mortgage company that the homebuilder had partnered with. Kickbacks would then be distributed back to the homebuilder from the sham entities in the form of profit distributions or a service agreement.
Alleging that the affiliated business arrangements violated RESPA’s prohibition on giving and receiving kickbacks for services involving federally related mortgages, the CFPB ordered the homebuilder to surrender to the U.S. Treasury approximately $118,000 - the amount the homebuilder had received through the arrangement since early 2010.
Noting that “[k]ickbacks harm consumers by hampering fair market competition and by unnecessarily increasing the costs of getting a mortgage,” the CFPB’s Director Richard Cordray stated in connection with the settlement that “[t]he CFPB will continue to take action against schemes designed to let service providers profit through unscrupulous and illegal business practices.”