Supreme Court To Clarify RESPA Fees

November 2011Newsletters In the Zone

On October 11, 2011, the U.S. Supreme Court granted a petition for certiorari in Freeman v. Quicken Loans, Inc. (Docket No. 10-1042 ) in order to clarify the scope of a federal law meant to protect homebuyers from being overcharged for real estate settlement services.

The question presented is whether Section 8(b) of the Real Estate Settlement Services Act prohibits a bank or title company from charging fees for services it did not perform, or instead is limited to prohibiting only kickback arrangements, in which the bank or title company shares fees with another company or person.

The case, brought by Louisiana residents Tammy Foret Freeman and Larry Scott Freeman, alleges Quicken charged them a $980 loan discount fee on a mortgage loan in 2007. Though that fee is normally imposed in exchange for a lower interest rate, Quicken did not reduce the Freemans' interest rate, they charge in their complaint.

Section 8(b) of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607(b), provides:

“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”

In this case, the Fifth Circuit joined the Fourth, Seventh and Eighth Circuits in ruling that this provision prohibits the acceptance of unearned fees only when those fees are divided with a culpable third party, as in a kickback arrangement. It acknowledged, however, that the Third, Second and Eleventh Circuits, as well as the Department of Housing and Urban Development, have taken the contrary view that the provision also applies to unearned fees retained by a single defendant.

For more information, please contact Lauren W. Taylor at 215.918.3625 or [email protected].

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