FACTS
Plaintiff Edwards, a resident of Ohio, in a class action sued defendants The First American Corp. and First American Title Insurance Co. The complaint alleged violation of the Real Estate Settlement Procedures Act. It alleged that First American improperly paid millions of dollars to individual title companies in exchange for the title companies entering into exclusive referral agreements with First American. Plaintiff asserts that in exchange for First American's purchase of a minority interest in many of these title agencies, the title agencies entered into an "exclusive" agency agreement with each of them that were completely exclusive and that these agreements are actually exclusive and illegal under the ant-kickback provisions of RESPA.
Plaintiff alleges she was affected by one of these exclusive agency agreements between First American and Tower City. In 1998, First American paid Tower City $2 million in cash and securities and in exchange First American received a 17.5% minority interest in Tower City. Tower City then entered into a "Captive Title Insurance Agreement" that required it to refer all future title insurance business "exclusively" to First American Title. Tower City did have agreements with and regularly referred business to at least three other title companies prior to 1998 but then exclusively sent all the business to First American after they entered into the Captive Title Insurance Agreement.
Plaintiff had purchased a home in Cleveland in 2007 and Tower City was the settlement agent and conducted the closing in Ohio. Plaintiff received her HUD-1 showing that she would pay $455.43 and the seller would pay $272.41 for title insurance. Plaintiff claims this violated RESPA notwithstanding Ohio controlled the price of title insurance and all title companies had to charge the same price for insurance. Notwithstanding there was no overcharge Plaintiff alleged this violated the RESPA anti-kickback law. Defendants alleged there is no injury to plaintiff because state law controls these fees and there was no overcharge and therefore no kickback.
Defendants First American moved to dismiss the complaint for lack of standing to sue because plaintiff was not injured because there was no overcharge for the insurance because Ohio state law controlled all the fees. This motion was denied and First American appealed.
The 9th Circuit Court of Appeals said affirmed. RESPA prohibits the payment of "any fee, kickback, or thing of value" in exchange for business referrals and also forbids that a "portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service" be paid for services not actually rendered to the customer. Whenever there is a violation plaintiff can receive an amount equal to three times the amount of any charge paid for the settlement service.
Since a violation occurs when any charge is paid for the referral, there is no restriction to a particular type of charge, such as an overcharge. The term "overcharge" does not appear anywhere in the statute. Because the term overcharge does not exist anywhere in the statute any charge paid for the referral of business including the statutory charges allowed by the state for the exclusive referral the plaintiff is injured. The advice given by a title company in this exclusive arrangement may lose its impartiality and may not be based on the professional evaluation of the quality of the service provided if the referrer has a financial interest in the company being recommended.
Thus a plaintiff has standing to sue a settlement service provider under RESPA, even if that plaintiff was not overcharged for settlement services. (Edwards vs. The First American Corporation, et al. 08-56536, 08-56538, 6-21-10)
MORAL
If any settlement service provider is paid for a referral as a referral, even if no overcharge there is a RESPA violation and the payor will pay the plaintiff. Read RESPA VERY CAREFULLY before you ask for the referral. Question: If you a mortgage broker YSP in exchange for the referral is it a RESPA violation and does the lender have to pay?
RESPA DOES NOT ALLOW REFERRAL FEES TO BE PAID TO REAL ESTATE BROKERS FOR REFERRING HOME WARRANTY COMPANIES
FACTS
RESPA does not prohibit a real estate broker or agent from referring business to a home warranty company. Rather, RESPA PROHIBITS A REAL ESTATE BROKER OR AGENT FROM RECEIVING A FEE FOR SUCH A REFERRAL, AS A REFERRAL IS NOT A COMPENSABLE SERVICE.
Accordingly, HUD interprets section 8 of RESPA and HUD's regulations as these authorities apply to the compensation provided by home warranty companies to real estate brokers and agents as follows:
(1) A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under section 8;
(2) Depending upon the facts of a particular case, an HWC may compensate a real estate broker or agent for services when those services are actual, necessary and distinct from the primary services provided by the real estate broker or agent, and when those additional services are not nominal and are not services for which there is a duplicative charge; and
(3) The amount of compensation from the HWC that is permitted under section 8 for such additional services must be reasonably related to the value of those services and not include compensation for referrals of business.
(75 fr 36271, 6-25-10)
MORAL
Before you do it, consult with your attorney. It is better to get a legal opinion and pay for the few hours it takes than to pay for the defense of a Mortgagee Review Board hearing and potential penalty.
FBI, IRS AND STATE BAR OF CALIFORNIA RAID LOAN MOD FIRM
