The Consumer Financial Protection Bureau filed suit this week against a law firm that performed title work and operated joint ventures with certain real estate companies and mortgage brokers. The JV relationships were essentially sham arrangements, according to the complaint filed by the CFPB. As evidence thereof the CFPB noted the companies were undercapitalized, and had no real employees (anyone affiliated with the companies had concurrent employment with the law firm). In addition, the JV companies did no outside advertising, had no business beyond that referred by the realtor/broker partners, and did not have separate email or office space from the law firm. Further, the substantive title work was in fact performed by the law firm, not by the joint ventures themselves. Essentially, the CFPB alleges these joint ventures were merely a series of shell companies aimed at sharing referral fees in violation of section 8 of Real Estate Settlement Procedures Act.
This case underscores the continuing trend of the agency to look past agreements to examine the true substance of the transactions at issue. Lenders with JV agreements and MSAs should reexamine the underlying nature of the relationships and ensure that in substance they do not violate RESPA. To accentuate this point: the CFPB’s complaint names the individual partners of the law firm as defendants.