• RESPA - CFPB Takes Action against Settlement Service Providers
  • April 12, 2017 | Author: Marjorie A. Corwin
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • It is time to reconsider all arrangements between or among settlement service providers. On January 31, 2017, the Consumer Financial Protection Bureau (CFPB) made public four related enforcement actions, all based on the anti-kickback rule of the Real Estate Settlement Procedures Act (RESPA). In the principal order, the CFPB imposed a $3.5 million civil penalty against a mortgage lender that, according to the consent order, entered into hundreds of arrangements that resulted in referrals of settlement service business in violation of RESPA. Simply stated, RESPA's anti-kickback rule, codified at 12 USC §2607 and implemented by 12 CFR §1024.14, prohibits giving or receiving anything of value for the referral of residential real property settlement service business. "Settlement service business" is very broadly defined - including all aspects of residential mortgage lending, real estate brokering, title insuring, loan settlement and closing, appraising and more - effectively covering all activities related to the origination, processing, underwriting, closing and funding of most 1-4 family home loans. In addition to the principal order against a mortgage lender, the CFPB entered consent orders with two realtors and a mortgage loan servicer. The orders described RESPA violations based on marketing services agreements, lead generation agreements, desk rental agreements, referrals for loan preapprovals and co-marketing arrangements. Of particular note, the CFPB described a RESPA violation as an arrangement where one settlement service provider (for example, a mortgage lender) subsidizes a portion of another service provider's (for example, a realtor's) online advertising expense in return for promoting the subsidizer's business. Violating RESPA's anti-kickback rule can not only lead to significant administrative and civil penalties, but violations can also lead to private causes of action claiming treble damages and criminal penalties. Creativity in developing business arrangements between and among settlement service providers is never recommended. Please contact Marjorie Corwin if you would like to discuss these CFPB developments in greater detail.