Applying the language of the Supreme Court of the United States’ rulings in Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034, 2040 (2012), the U.S. Court of Appeals for the Eleventh Circuit recently held that “markups” for settlement services do not violate the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. (“RESPA”).
However, the Court rejected the defendants’ argument that, because the borrower received a credit for the allegedly illegal charges at closing, the borrower suffered no “actual injury” and therefore lacked standing to sue.
A copy of the opinion is available at: http://media.ca11.uscourts.gov/opinions/pub/files/201411636.pdf
The borrower refinanced a mortgage, and then sued the title agency hired by the lender, the law office that the title agency contracted with to perform the closing, and the individual closing attorney. The borrower alleged that the title agency and law firm violated Section 8 of RESPA, 12 U.S.C. 2607(b), which makes it illegal to accept any portion of a settlement charge unless a service is actually rendered, by splitting a $300 settlement fee. The borrower also alleged that the title agency violated the same subsection by charging $125 for recording charges when it only paid $40. The borrower also attempted to assert claims for statutory violations and unjust enrichment under Georgia law.
The defendants moved to dismiss, and the district court dismissed the case for lack of subject matter jurisdiction, reasoning that because the borrower received a credit for the allegedly illegal charges at closing, she did not suffer any actual injury and thus lacked standing to sue.
On appeal, the Eleventh Circuit quickly disposed of the standing issue, ruling that the borrower alleged an actual injury and had standing to sue under Article III of the Constitution because she alleged she should have received an additional $385, and because the borrower did not need to prove her allegations at the pleading stage.
The Eleventh Circuit then turned to whether the record supported an alternative basis for dismissal under the “tipsy coachman” doctrine, and found that it did.
The Court held that the title company did not violate RESPA by allegedly splitting the $300 fee because, even though it may have been illegal for the title company to provide settlement services under Georgia law, and thus it services were arguably “unearned,” the alleged fee split was “not in exchange for nothing.”
In addition, the Eleventh Circuit held that the law office and attorney earned their portion of the fee, because arranging for a third party to perform a service is itself a compensable service.
Likewise, the Court held that the title company did not violate RESPA by increasing the actual cost of recording fees, because it actually performed services for the borrower and received nothing back from a third party in return services it did not perform.
The Eleventh Circuit reasoned that its interpretation was consistent with the language of the Supreme Court of the United States’ rulings in Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034, 2040 (2012), and the rulings of the majority of circuit courts that have held that Congress chose to leave markups to the free market.
The case was remanded to the district court to decide whether to exercise supplemental jurisdiction over the state law claims or remand them to state court.
Ralph T. Wutscher
McGinnis Wutscher LLP
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