The Lawletter Vol 35 No 2, January 21, 2011
In order to reform the real estate settlement process, Congress passed the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. §§ 2601-2617. The purpose of the statute was to ensure that consumers are "provided with greater and more timely information on the nature and costs of the settlement process" and "protected from unnecessarily high settlement charges caused by certain abusive practices." 12 U.S.C. § 2601(a). One significant section, RESPA § 8(b), deals with "splitting charges":
(b) Splitting charges
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.
Id. § 2607(b). Although that provision talks about "splitting charges," the U.S. District Court for the Southern District of Ohio in Augenstein v. Coldwell Banker Real Estate LLC, No. 2:10‑cv‑191, 2010 WL 4537049 (S.D. Ohio Nov. 9, 2010), recently opined that the above provision can be violated even when there are not multiple settlement service providers splitting charges. The court held that the RESPA provision directing 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" except "for services actually performed" does not by its plain terms prohibit only the splitting of fees between multiple settlement service providers.
In the Ohio case, the Augensteins had entered into a federally related loan in order to finance their purchase. In connection to the sale and settlement, the Augensteins obtained settlement services from Coldwell Banker. At closing, Coldwell Banker charged the Augensteins an administrative fee of $199 in addition to the total sales/broker commission of $19,710. The Augensteins alleged that Coldwell Banker had not provided any services in exchange for the administrative fee and that the charging and the accepting of the fee violated RESPA because (1) it was a fee for which no services were rendered; and/or (2) it was a duplicative fee for services already rendered as part of the total sales/broker's commission. In holding that the Augensteins had stated a claim under RESPA and that a violation of § 2607(b) did not require multiple providers, the court commented:
This Court finds that the text of RESPA § 8(b) clearly and unambiguously prohibits undivided unearned fees. The statute explicitly states that "[n]o person shall give and no person shall accept" any part of a fee "other than for services actually performed." RESPA § 8(b). In OfficeMax, Inc. v. United States, the Sixth Circuit said that "and" should presumptively be read conjunctively. 428 F.3d 583, 589 (citing Crooks v. Harrelson, 282 U.S. 55, 58, 51 S.Ct. 49, 75 L.Ed. 156 (1930)). But if this reading would lead to incoherent or absurd results, then "and" should be read disjunctively to mean "or." Id. at 589‑90. Keeping in mind that "[i]t has long been a 'familiar canon of statutory construction that remedial legislation should be construed broadly to effectuate its purposes,[']" Carter, 553 F.3d at 985 (quoting Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967)), it would lead to absurd results if two settlement service providers could violate § 8(b) by sharing an unearned fee, but one settlement service provider could freely charge consumers such fees. Thus, the "and" in § 8(b) creates two prohibitions: it prohibits a settlement service provider from charging a fee for which no work is performed, and it prohibits a settlement service provider from receiving such a fee. The violation exists regardless of whether the provider is sharing that fee with another. See Sosa, 348 F.3d at 982; see also Santiago, 417 F.3d at 388.
Id. at *4. However, the court also cautioned that there is currently a split of authority among the federal circuits. The Second, Third, and Eleventh Circuits have held that a violation can occur with only one settlement service provider. See Santiago v. GMAC Mortg. Group, Inc., 417 F.3d 384 (3d Cir. 2005); Kruse v. Wells Fargo Home Mortg., Inc., 383 F.3d 49 (2d Cir. 2004); Sosa v. Chase Manhattan Mortg. Corp., 348 F.3d 979 (11th Cir. 2003). On the other hand, the Fourth, Seventh, and Eighth Circuits have found that the text of § 2607(b) clearly and unambiguously requires two culpable parties. See Haug v. Bank of Am., 317 F.3d 832 (8th Cir. 2003); Krzalic v. Repub. Title Co., 314 F.3d 875 (7th Cir. 2002), cert. denied, 539 U.S. 958 (2003); Boulware v. Crossland Mortg. Corp., 291 F.3d 261 (4th Cir. 2002).