"RESPA" doesn't prohibit the collection of unearned settlement fees, Supreme Court says

Ben Bruner Iowa Real Estate & Land Use Iowa Banking LawDickinson Law Firm Des Moines Iowa

Posted on 06/22/2012 at 07:18 AM by Benjamin Bruner

In the recent Freeman v Quicken Loans, Inc. case, the U.S. Supreme Court was confronted with a dispute that centered on a provision of the Real Estate Settlement Practices Act (RESPA) that attempts to prohibit lender kickbacks and referral fees. The plaintiffs in the case alleged that Quicken Loans had violated 12 U.S.C. § 2607(b) by charging them fees for which no service had been provided. Quicken Loans was granted summary judgment on the grounds that said provision of RESPA applied only to prohibit unearned fees from being split with another person. The “unearned fees” involved in this case can (logically and obviously) be described as fees for which lenders provide no services. The Court held that in order to establish a violation of 12 U.S.C. § 2607(b) – which provides that “[n]o person shall give and no person shall accept 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” – a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. The Court does not interpret the subject provision of RESPA to generally prohibit “unearned fees”, but only states that such “unearned fees” may not be shared between two or more persons. This may seem odd, but the Court stated that the law Congress passed was strictly related to fee splitting and fee splitting only. In order to control the level of “unearned fees” that a single bank charges, Congress would have to be more specific in its prohibition of said fees. The Court noted that Congress may well have intended that existing remedies, like state-law actions for fraud, were sufficient to address entirely fictitious fees. The Court’s unanimous decision may reopen the door to controversial “administrative” fees levied by real estate brokers, and may encourage mortgage lenders, settlement agents and others to mark-up their fees, a practice that had been banned by federal regulators for the past decade.

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