|May 29, 2012|
Previously published on May 2012
On May 24, 2012, the Supreme Court issued a long-awaited ruling resolving a split among the circuits, unanimously holding that a violation of Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA") occurs only when a fee charged for settlement services has actually been split between two or more parties and not when an unearned fee has been retained solely by the settlement service provider charging the fee. In finding that fee splitting is a necessary element for a Section 8(b) RESPA violation, the Court alleviated much of the concern harbored by lenders, settlement companies, title companies and real state brokerages relating to the legality of certain administrative and other fees under RESPA and the treble damages and attorneys' fees that go hand-in-hand with such violations.
What Did the Supreme Court Decide?
In Freeman, et al. v. Quicken Loans, Inc., 566 U.S. --- (2012), Petitioners, who had obtained residential mortgage loans from Respondent, Quicken Loans, Inc. ("Quicken Loans"), alleged that Quicken Loans violated Section 8(b) of RESPA when it charged them a fee for which no services were provided in return. Section 8(b) prohibits giving and accepting "any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service... other than for services actually performed." Real Estate Settlement Procedures Act, 12 U.S.C. §2607(b).
In Freeman, the Supreme Court considered whether to establish a violation of Section 8(b) of RESPA, a plaintiff was required to demonstrate that a settlement charge, whether alleged to be unearned or not, was actually divided between two or more persons. In affirming the Fifth Circuit's decision granting summary judgment in favor of Quicken Loans, the Supreme Court explained that the language of RESPA "unambiguously covers only a settlement-service provider's splitting of a fee with one or more persons; it cannot be understood to reach a single provider's retention of an unearned fee." The Petitioners in Freeman did not and could not allege that the disputed fee charged by Quicken Loans had been split with another party. Accordingly, no RESPA violation was found.
What is the Impact of the Supreme Court's Ruling?
The Freeman case captured the attention of many industry associations including the National Association of Realtors, American Escrow Association, American Land Title Association and the Real Estate Services Providers Council - all of whom filed amicus briefs with the Supreme Court in support of the position taken by Quicken Loans.
An adoption of Petitioners' interpretation of RESPA would have had a substantial negative impact on the mortgage and real estate industries. As NAR argued in its brief to the Supreme Court, under Petitioners' reading of the statute, customers would be able to state a claim against a settlement-service provider for failing to provide sufficient services in exchange for the fee thereby transforming the statute into a vehicle for regulating charges for settlement services. The purpose of RESPA is to prohibit certain abusive practices such as kickbacks and fee splitting among multiple parties where no settlement services were performed by a party receiving a portion of the split fee, and not to provide customers with the power to regulate the charges issued by settlement-service providers. Luckily for the mortgage and real estate industries, the Supreme Court saw through Petitioners' interpretation of the statute and instead, with its ruling in Freeman, has provided a sense of relief to these industries so that they may continue to charge their customary fees without the fear of being faced with allegations of a RESPA violation.