October 25, 2011
Steve Friedman, Senior Attorney, National Legal Research Group
Congress enacted the Real Estate Settlement Procedures Act ("RESPA") of 1974, 12 U.S.C. §§ 2601-2617, in response to the need for significant reforms in the residential real estate settlement process. See RESPACReal Estate Settlement Procedures Act Home Page (last visited Oct. 12, 2011) ("[RESPA] insures that consumers throughout the nation are provided with more helpful information about the cost of the mortgage settlement and protected from unnecessarily high settlement charges caused by certain abusive practices.").
Indeed, the legislation expressly states that it is intended to, among other things, eliminate "kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services." 12 U.S.C. § 2601(b)(2). To that end, § 8(b) of RESPA provides as follows: "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).
The U.S. Department of Housing and Urban Development, the federal agency responsible for enforcing RESPA, has asserted that four types of overcharging schemes are prohibited by § 8(b):
1. Fee splitting, where two or more persons split a fee, any portion of which is unearned;
2. Mark-ups, where a service provider charges the borrower for services performed by a third party in excess of the cost of the services to the service provider but keeps the excess itself [without providing any additional goods or services];
3. Undivided unearned fees, where a service provider charges the borrower a fee for which no correlative service is performed; and
4. Overcharges, where a service provider charges the borrower for services actually performed but in excess of the service's reasonable value.
Freeman v. Quicken Loans, 626 F.3d 799, 802 (5th Cir. 2010) (citing RESPA Statement of Policy 2001-1, 66 Fed. Reg. 53,052 (Oct. 18, 2001)).
All U.S. Courts of Appeals that have addressed the issue agree that § 8(b) plainly prohibits the first and fourth types of schemes, fee splitting and overcharges. See id. (citing cases). However:
The circuits disagree on the remaining two types of fees: mark‑ups and undivided unearned fees. The Fourth, Seventh, and Eighth Circuits have each held that RESPA § 8 is exclusively an anti‑kickback provision. [See Boulware v. Crossland Mortg., 291 F.3d 261 (4th Cir. 2002); Krzalic v. Republic Title, 314 F.3d 875 (7th Cir. 2002); Haug v. Bank of Am., 317 F.3d 832 (8th Cir. 2003).] Accordingly, RESPA ' 8(b) requires two culpable parties, a giver and a receiver of the unlawful fee, rendering mark‑ups by a sole services provider not actionable. The Second, Third, and Eleventh Circuits have rejected the two‑party requirement and held that RESPA § 8(b) prohibits mark‑ups. [See Kruse v. Wells Fargo Home Mortg., 383 F.3d 49 (2d Cir. 204); Santiago v. GMAC Mortg. Group, 417 F.3d 384 (3d Cir. 2005); Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979 (11th Cir. 2003).] Only the Second Circuit has explicitly addressed whether RESPA § 8(b) prohibits a sole provider's undivided unearned charges and found that it did. Cohen v. JP Morgan Chase & Co., 498 F.3d 111 (2d Cir. 2007). Presumably, the three circuits that require two culpable actors would not find undivided unearned charges actionable.