If you know only one thing about the Real Estate Settlement Procedures Act (RESPA), it's that kickbacks and unearned fees are prohibited. Thursday, however, the Supreme Court clarified the terms of the unearned fee prohibition. Justice Scalia, writing for the unanimous court, affirmed the Fifth Circuit Court of Appeals to hold that a plaintiff must demonstrate that a loan charge was divided between two or more persons to sue for a RESPA violation.
The RESPA kickback and unearned fees prohibition states that "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 ... other than for services actually performed."
Three couples who obtained mortgage loans from Quicken Loans filed separate state-court actions against the company, alleging that Quicken Loans had violated the prohibition by charging them loan discount fees without giving them lower interest rates in return. Money paid for a service not provided certainly sounds like an unearned fee, but the courts viewed it differently through their RESPA-tinted glasses.
The district court granted summary judgment in favor of Quicken Loans, and the Fifth Circuit Court of Appeals affirmed, because the plaintiffs had not alleged that Quicken Loan engaged in fee-splitting. This week, the Supreme Court agreed, holding that a plaintiff alleging a RESPA kickback/unearned fee violation must demonstrate that a charge for settlement services was divided between two or more persons.
According to the Supreme Court, the relevant RESPA provision, 12 U.S.C. § 2607(b), unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.
Is accepting a loan discount fee without a reciprocal interest-rate reduction shady? That’s for you and Congress to decide. But the Supreme Court says that it’s not the prohibited activity anticipated in the RESPA kickbacks and unearned fees prohibition, so the plaintiffs can’t sue Quicken Loans for a RESPA violation.
Mortgage Law Fun Tip of the Week: Start a firm pool to guess when RESPA will be amended to cover fee-for-nothing scenarios, because there’s no way Congress will let this slide.
- Freeman v. Quicken Loans (FindLaw’s CaseLaw)
- US High Court Bars Louisiana Fee Suits Against Quicken Loans (The Wall Street Journal)
- No Injury in Fact, No Problem? SCOTUS Talks RESPA Rules Next Week (FindLaw’s Supreme Court Blog)