FYI: NY Fed Ct Dismisses RESPA Challenge to Division of Title Insurance Premiums b/t Title Insurer and Title Agent

The United States District Court for the Eastern District of New York recently dismissed putative class claims asserting violations of the federal Real Estate Settlement Procedures Act ("RESPA") relating to allegations of prohibited kickbacks to and illegal fee splitting by title insurers with title agents, as barred under RESPA and under the "filed-rate doctrine."  A copy of the opinion is attached.

This case began as a putative class action with Gerry Galiano as the named plaintiff, which in turn emerged out of another class action that named many of the same defendants.  The plaintiff alleged that various title insurance defendants, including the Title Insurance Rate Service Association, Inc. ("TIRSA"), injured the plaintiff by setting title insurance rates that included both agency commissions -- which the plaintiff characterized as "prohibited fees, kickbacks or other things of value" -- as well as insurance risk costs, or that the division of the title insurance fee into agency commission and risk premium was a prohibited "fee splitting 'other than for services actually performed.'"

The court noted that RESPA was enacted to safeguard home buyers from abusive practices resulting in in "unnecessarily high settlement charges."  However, the court also noted that Congress did not intend to empower the federal courts to serve as "roving equity tribunals" governing real estate closings.  

As you may recall, Sections 8(a) and 8(b) of RESPA prohibit the giving or receiving of referral fees, kickbacks, or any other "thing of value" in exchange for the referral of real estate settlement service business involving a federally regulated mortgage loan.  However, Section 8(c) of RESPA includes a "safe-harbor" provision allowing "bona fide" fees for services actually rendered.

The Court held that the plaintiff conceded the defendants performed actual services, and this admission is "fatal" to his RESPA claim.  Because the services at issue, such as performing title searches and examinations, are "essential" services when insuring title, they are "bona fide" as required under RESPA.  The Court noted that, given this fact, the plaintiff was in essence contesting the amounts paid for title insurance services, and that RESPA is not intended to be a "price-control statute."  The Court further held that the defendants only shared fees with third parties when those parties performed essential services, and this does not constitute an improper "split charge for which no service was performed."

In addition, the District Court held that the "filed-rate doctrine" would also bar the plaintiff's RESPA claim.  This doctrine states that "rates filed with a regulatory agency, such as the title-insurance rates at issue are "per se reasonable and unassailable in judicial proceedings."  These rates were filed by the title insurance defendants with the New York Insurance Department.  As you may recall, the filed-rate doctrine prevents courts from substituting their judgment for that of a regulatory agency applying expertise to the area in question.  The doctrine also prevents price discrimination among consumers, as non-suing consumers would be at a disadvantage to those who were awarded lower rates via a lawsuit. 

Finally, the Court observed that there is no fraud exception to the filed-rate doctrine, as such an exception would simply be involving the courts in deciding what constitutes a "reasonable rate."  The Court also noted that the Second Circuit has "not yet spoken" on the applicability of the filed-rate doctrine to RESPA "kickback claims," and the lower court was thus not bound by a "specific line of reasoning."  The District Court held that because the kickback allegations had been rejected, as actual services were performed, the payments in question could not be "illegal kickbacks" that would preclude application of the filed-rate doctrine. 

 

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

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FYI: 11th Cir Says "Discount Points" Not RESPA "Settlement Service"

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a class action complaint that raised allegations of improper fees under Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C § 2607(b), in connection with charging loan discount payments, or discount points, for a below-market interest rate.
 
A copy of the opinion is available at:
http://www.ca11.uscourts.gov/opinions/ops/200811245.pdf
 
Two sets of borrowers brought a class action lawsuit against Quicken Loans, Inc. ("Quicken Loans") claiming to represent everyone who obtained a residential mortgage loan from Quicken and was charged discount points without receiving the below-market interest rate allegedly promised.  The borrowers' complaint essentially claimed that Quicken charged the borrowers discount points for a below-market interest rate without providing the below-market interest rate, arguing that this violated RESPA's prohibitions against charging for real estate settlement services other than for services actually performed.
 
The Eleventh Circuit affirmed the district court's dismissal of the borrower's complaint, holding that discount points such as those charged in this case are not settlement services under RESPA. 

 

It rejected the borrowers' argument that discount points are settlement services because they are included on the HUD-1 Settlement Statement ("HUD-1") of the U.S. Department of Housing and Urban Development ("HUD") under the title "Items Payable in Connection with the Loan" and the HUD-prepared settlement cost information booklet refers to such items as settlement costs. 

 

Instead, the Eleventh Circuit relied on the statutory language of RESPA and the plain and ordinary meaning of the word "service" to hold that discount points paid in the context raised are part of the loan agreement, not a service provided for borrowers.  The Eleventh Circuit noted that it was limited in its interpretation of the term "settlement services" to the statutory definition and the regulations interpreting it, and stated that it could not conceive of a circumstance in which charging discount points would qualify under its definition of "service."
 
Moreover, the Eleventh Circuit found the borrowers' contention that Quicken did not provide them the below-market interest rate they bargained for in connection with the discount points "manifestly implausible."  It reached this conclusion based on the notes the borrowers signed after reading the loan documents, including the HUD-1s and their inclusion of a loan discount amount, and the fact that the borrowers made no objection to paying the advance interest called for by the discount points, proceeding to close the loans anyway. 

 

The Eleventh Circuit also affirmed the district court's dismissal of the borrowers' breach of contract claim under state law for the same reasons.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

Email:  RWutscher@kw-llp.com

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FYI: FL App Ct Reverses Summary Judgment in Foreclosure Action, Citing Failure to File Original Note and Mortgage Prior to Judgment

The District Court of Appeal for the State of Florida, 4^th District, reversed a trial court's grant of final summary judgment of foreclosure in favor of an mortgagee that did not file a copy of the original note and mortgage with the court prior to the entry of judgment.  

A copy of the opinion is available on line at:  http://www.4dca.org/opinions/Oct%202010/10-27-10/4D10-1898.op.pdf

U.S. Bank, N.A., as Trustee, filed an unverified complaint against Appellant Guiseppe Servedio ("Servedio') seeking to both foreclose a mortgage, and to reestablish a lost promissory note.  The copy of the mortgage attached to the complaint identified Bankers Express Mortgage ("Bankers Express"), Inc. as both the lender and mortgagee.  The attached adjustable rate rider and prepayment penalty rider also identified Bankers Express as the lender and mortgagee.

Servedio answered Trustee's complaint denying all allegations therein, and asserting affirmative defenses alleging that Trustee was not "in privity" with the lender and mortgagee, and lacked standing to foreclose.

In support of its motion for summary judgment, Trustee produced an affidavit signed by a representative of the loan servicing company, which listed the total amount due on the mortgage, but did not state that Trustee was an owner or holder of either instrument, and contained no supporting documentary evidence. 

The Appellate Court's opinion noted that Trustee failed to present the trial court with a copy of the original note and an affidavit of ownership at the summary judgment hearing.  Trustee conceded that these documents were not filed with the court until several days later.  Due to this fact, the record on appeal did not contain these documents or an evidence of the assignment of the note. 

Because these documents were not part of the record at the time summary judgment was granted, the Appellate Court stated it could not determine whether the documents had been considered by the trial court.  The Court held that in the absence of a stipulation, or the mortgagee's seeking "relief in the trial court to recreate the record," the court could not "rely on the representations of counsel alone."

Furthermore, the Appellate Court held that Trustee's failure to authenticate the note and mortgage, and to file and serve the instruments more than twenty days before the summary judgment hearing, as required by Florida law, also necessitated reversal of the trial court's grant of summary judgment in favor of Trustee. 

The court noted that its opinion did not preclude Trustee from re-filing for summary judgment with the necessary documents.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

Email:  RWutscher@kw-llp.com

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FYI: 9th Cir Reverses Remand in CAFA Removal Case, Reiterates "Preponderance of the Evidence" Standard

The U.S. Court of Appeals for the Ninth Circuit, using its "preponderance of the evidence" standard, recently reversed a district court's order remanding a class action lawsuit to state court on the ground that the district court improperly found the $5 million amount in controversy requirement of the Class Action Fairness Act ("CAFA"), 28 U.S.C. § 1332(d)(2), to have not been satisfied.

A copy of the opinion is available at:  http://www.ca9.uscourts.gov/datastore/opinions/2010/11/18/1056512.pdf

A landline telephone customer of Verizon Communications, Inc. ("Verizon") filed a class action lawsuit in California state court, alleging that Verizon billed her on behalf of a third party vendor, Enhanced Services Billing, Inc. ("ESBI"), for services she claimed were unauthorized.  She sought to represent a class of landline Verizon customers in California who had been billed for similar servicers they never agreed to.  Her complaint failed to specify the amount of damages she sought.

Verizon filed a notice to remove the case to the District Court for the Central District of California on the grounds that CAFA provides for removal of class action lawsuits to federal court where the amount in controversy exceeds $5 million.  In support of the notice of removal, Verizon provided the affidavit of a senior Verizon employee confirming that the amount billed on behalf of ESBI to landline telephone subscribers in California exceeded $5 million.

The plaintiff moved to remand the case to state court, arguing that Verizon failed to meet its burden of establishing the amount in controversy exceeded $5 million because Verizon's affidavit only spoke to total amount billed on behalf of ESBI without distinguishing between authorized and unauthorized billings.  Despite the fact that the plaintiff offered no evidence to challenge the amounts averred to in Verizon's affidavit and did not concede that the amount in question was less than $5 million, the district court accepted the plaintiff's position and remanded the case to state court.

The Ninth Circuit overturned the district court's ruling, holding that where a defendant supports its notice of removal with unchallenged evidence and the plaintiff refuses to limit the damages sought to less than $5 million, the defendant meets its burden of proof under CAFA's amount in controversy requirement.  The opinion specifically noted that the district court's decision would have effectively required Verizon to concede liability by forcing it to admit that at least $5 million of the billings in question were unauthorized. 

The Ninth Circuit also reiterated that it employs a preponderance of the evidence standard for the burden of proof required to establish the amount in controversy under CAFA, which it found Verizon met in this case.  The Ninth Circuit distinguished its preponderance of the evidence standard from the First, Second, and Seventh Circuits, which it said utilized a lower "reasonable probability" standard.

 

Let me know if you have any questions.  Thanks.

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

Email:  RWutscher@kw-llp.com

http://www.kw-llp.com

 

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