The Supreme Court has recently ruled that homeowners have no claim under the federal Real Estate Settlement Procedures Act against a mortgage lender who keeps 100% of a fee that was charged for providing, well, nothing.
Freeman v. Quicken Loans, No. 10–1042 (May 24, 2012) involved three couples who had obtained mortgage loans. The couples alleged that Quicken charged them fees for which no services were provided in return. For example, the Freemans alleged that they were charged a loan “discount fee” of $980, but were not in fact given any “discount” in return.
The couples alleged claims under Section 2607(b) of The Real Estate Settlement Procedures Act (RESPA), which provides that “[n]o 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 . . . other than for services actually performed.” 12 U. S. C. §2607(b).
The Supreme Court held that in order to establish a violation of §2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. Because the lenders in question had each kept 100% of the fees at issue for itself and had not “split” such fees with any other entity or person, the Supreme Court ruled that lenders did not violate 2607(b). In reaching its unanimous result, the Supreme Court rejected a 2001 interpretation of the statute by the Department of Housing and Urban Development (HUD)—the agency that had been authorized by Congress to “prescribe such rules and regulations” and “to make such interpretations” as “may be necessary to achieve the purposes of” RESPA. HUD had interpreted 2607(b) as “not being limited to situations where at least two persons split or share an unearned fee.”
The Supreme Court recognized that its holding allows one to escape liability by retaining 100% of a “fictitious fee,” whereas one who accepts even a miniscule percentage of such a fee faces potential liability for improper fee-splitting. The Court explained as follows:
Nor is there any merit to petitioners’ related contention that §2607(b) should not be given its natural meaning because doing so leads to the allegedly absurd result of permitting a provider to charge and keep the entirety of a $1,000 unearned fee, while imposing liability if the provider shares even a nickel of a $10 charge with someone else. That result does not strike us as particularly anomalous. Congress may well have concluded that existing remedies, such as state-law fraud actions, were sufficient to deal with the problem of entirely fictitious fees, whereas legislative action was required to deal with the problems posed by kickbacks and fee splitting. (emphasis supplied). Although the Supreme Court took away any cause of action under 2607(b) when “fictitious fees” are not “split” between two or more parties, the opinion—and in particular the above-quoted passage—may provide support for pursuing state-law claims against those who charge fees to mortgage borrowers without providing any service in return for said fee.
You can read more about the Supreme Court’s ruling in the Freeman v. Quicken Loans Real Estate Settlement Procedures Act lawsuit by visiting the court’s website.