A pair of cases alleging violations of Real Estate Settlement Procedures Act anti-kickback provisions could impact relationships between title underwriters and agencies and how title policies are produced.
A previous ruling by an appellate panel in the Third Circuit in one of these cases, Carter v. Welles-Bowen, was cited by a Ninth Circuit panel in its ruling in the case of Edwards v. First American.
But when Carter v. Welles-Bowen was returned to the lower court for a hearing, the judge threw out HUD’s 10-point test to determine whether an affiliated business arrangement is legit or a sham.
Furthermore, there does not need to be an allegation that the agency unduly financially benefited from the arrangement nor substandard service was provided, according to both circuits. Charles Cain, an attorney who also has a consulting practice, said the Appellate Court ruling in Carter, as well as the ruling in the Ninth Circuit case, shows that the consumer does not have to allege overcharges to bring these suits.
Part of the problem, he said, is that RESPA is “an old statute.” The way business is done today is much different than what was contemplated when RESPA was first written.
“Title production is a very different thing in the last five or six years, from what it was in the previous 50,” he said, adding this is true whether it is a traditional agency, an ABA or a shop owned by the underwriter. “The statute has, for years, almost mandated that there are inefficiencies in the system to meet RESPA’s requirements.”
For example, in several states, traditional agents have purchased not just search products, but commitments from the underwriters. However, an affiliated agency, under RESPA and most state statutes, would be “ill-advised to purchase something that is already pre-underwritten,” because it gets into the question did that agency provide core services to the consumer, Cain explained.
In creating the original RESPA statute, he said the framers were concerned about consumers being steered to certain settlement service providers in return for a kickback. But it was not designed to be a price-fixing statute. But case history, he said, shows that a plaintiff does not have to allege substandard service to sue. The courts have said the test is—does the arrangement meet the statute or the regulatory interpretation of RESPA? If it doesn’t, there could be de facto damages, even though the plaintiff is not out of pocket any money. There do not have to be actual damages, the courts have ruled, the standard is simply was the arrangement set up the right way, Cain said.
A spokesman for the American Land Title Association stated, “While we don’t comment on litigation involving our members, ALTA encourages all of its member companies to adhere to RESPA regulations, and we are constantly working with regulators to develop clear guidelines.” The Ninth Circuit ruling said the plaintiff could sue First American for damages for a Section 8 violation, overturning a summary judgment by a lower court in favor of the title company.
In this case, First American owns a piece of an agency, Tower City, in return for “exclusive” rights to all business originated by the agency. In its decision, the panel said, “These RESPA provisions are clear. A person who is charged for a settlement service involved in a violation is entitled to three times the amount of any charge paid. The use of the term 'any’ demonstrates that charges are neither restricted to a particular type of charge, such as an overcharge, nor limited to a specific part of the settlement service. Further, the term 'overcharge’ does not exist anywhere within the text of the statute.”
However, a judge in the Northern District of Ohio, Jack Zouhary, in two consolidated cases that would become known as Carter v. Welles-Bowen, granted summary judgment to the defendants.
