NAILTA Weighs In on Stonebridge Title, CFPB Enforcement and the Henson Case

The question of regulation and enforcement of RESPA Sections 8 (a) and (b)have been hot-button issues for the Consumer Financial Protection Bureau (CFPB) and the federal courts.  Recently, two matters have arrived on the regulatory scene that helps to define and, perhaps, alter what was previously known about compliance and we want to make NAILTA members aware of them. The first is a decision reached in a class action case currently pending in California known as Henson v. Fidelity National Financial.  That case involves the question of whether delivery services — such as from UPS or FedEx are covered under RESPA. [Editor’s note: The answer is “yes”.] To help you understand the importance of the Henson case, we have authored the enclosed memo which is available by clicking here. The second is a CFPB enforcement action against a New Jersey title insurance agency known as Stonebridge Title Agency.  The question in that case is whether “independent salespeople” can receive compensation solely from title insurance premiums based upon the referral of title insurance business if they are not also acting as an “employee” of the title agency. [Editor’s note: The answer is “no”.] Again, to help you understand the importance of the CFPB’s actions against Stonebridge Title, we have authored the enclosed memo which is available by clicking here. If you have any questions about the memos or the cases, please contact NAILTA by reaching out to our volunteers and experts at...

HUD Ten Part Test Held Unconstitutional in Court of Appeals

U.S. Court of Appeals Issues Ruling in Carter: Shortly before everyone left for their Thanksgiving holiday, the United States Sixth Circuit Court of Appeals in Cincinnati, Ohio issued a decision in the closely-watched Carter v. Welles Bowen Title, et al., case. The Carter case centered on the issue of whether the 1996-2 HUD Policy Statement, otherwise known as the Ten Part Test, was unconstitutional because it was too vague to be enforced. The Ten Part Test was created as a policy statement by HUD to help its enforcement of RESPA’s prohibition against sham affiliated business arrangements. In other words, under RESPA, any controlled business arrangement must satisfy the basic requiremetns of disclosure, non-restricted consumer choice and investment tied to ownership interests in order to qualify as a valid entity. Anything else would not be considered a bona fide provider of settlement services. Carter sued an Ohio controlled business arrangement consisting of a real estate firm and title company which was co-owned through a holding company also co-owned by Chicago Title Insurance Company, a well-known title insurance underwriter. The main allegation for the Plaintiff in the case was that the title agency and its ownership structure was nothing more than a sham conduit for illegal referral payments in violation of RESPA Section 8 and the 1996-2 HUD Policy Statement. The case has had a long procedural history winding its way through to the Court of Appeals on two separate occasions. The most recent of which focused on a lower court ruling that the Ten Part Test was unconstitutional as it was void for vagueness and thereby unenforceable. This prior ruling...

CFPB FILES suit against BORDERS & BORDERS, PLC – Illegal Kickbacks

  FOR IMMEDIATE RELEASE: October 24, 2013 CONTACT: Office of Communications Tel: (202) 435-7170   CONSUMER FINANCIAL PROTECTION BUREAU FILES SUIT AGAINST BORDERS & BORDERS, PLC FOR PAYING ILLEGAL REAL ESTATE KICKBACKS Company Funneled Kickbacks Through Network of Shell Companies   WASHINGTON, D.C. — The Consumer Financial Protection Bureau today filed a lawsuit in federal district court against a Kentucky law firm, Borders & Borders, PLC, and its principals, for illegally paying kickbacks for real estate settlement referrals through a network of shell companies.   “Today’s action sends a clear message that companies cannot design business structures to hide illegal kickbacks,” said CFPB Director Richard Cordray. “The CFPB will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses.”   The CFPB alleges that Louisville law firm Borders & Borders, PLC, and its principals, Harry Borders, John Borders, Jr., and J. David Borders, violated the Real Estate Settlement Procedures Act (RESPA) by operating a network of affiliated companies to pay kickbacks for referrals of mortgage settlement business. RESPA prohibits giving and receiving kickbacks for referrals of settlement service business involving federally related mortgages. When companies pay kickbacks in exchange for referrals, it can hurt competition and inflate real estate settlement costs for consumers, while creating an uneven playing field that puts law-abiding businesses at a disadvantage.   According to the CFPB’s complaint, Borders & Borders operated nine joint ventures with the owners and managers of local real estate and mortgage broker companies, and allegedly used the joint ownership to disguise illegal kickbacks as legitimate profit sharing.   The complaint alleges that when a...

The Edwards Decision

06-28-2012 Yesterday, the United States Supreme Court (“SCOTUS”) issued its long-awaited decision in the Edwards v. First American Title case.  The Court, in a 9-0 decision, dismissed First American’s appeal as having been improvidently granted. Procedurally, the decision results in the case returning to the U.S. District Court in California where a class action complaint consisting of two separate classes of plaintiffs awaits and now proceeds in earnest against First American. Substantively, the case permits future individual plaintiffs to sue under RESPA without having to establish that they were damaged or over-charged for their settlement services.  The Ninth Circuit holding in Edwards allows such cases to proceed and mirrors similar rulings in the Sixth and Third Circuits. NAILTA filed two “friend-of-the-court” briefs — one at the Ninth Circuit Court of Appeals and one at the SCOTUS — on behalf of the respondent, Denise Edwards. In her complaint, Edwards alleged that First American violated RESPA by creating an illegal referral arrangement with its title agent in Cleveland, Ohio.  Edwards did not allege that she was overcharged for her title services.  Rather, she alleged that the title underwriter violated the law that prohibits such arrangements. The SCOTUS decision essentially leaves the Ninth Circuit holding in place. NAILTA’s President, Charles Proctor, issued this statement in response to the SCOTUS ruling: “This decision opens the door to returning the integrity and transparency to the settlement process and the professionalism that independent land title agents bring to that process. This will lead to a quality product for the consumer at a competitive  price without giant entities controlling the market, the product, and the settlement process. We look...

Edwards v. First American case decision on Thursday, June 28, 2012

The U.S. Supreme Court announced today that it will announce its decision in the Edwards v. First American case and the health care cases on Thursday, June 28, 2012 at 10am.  We will have a copy of the decision and some thoughts on its impact at that time.  To follow the decision, please visit SCOTUSblog at http://www.scotusblog.com/ Also, for those interested, the attorneys who represent Denise Edwards at the U.S. Supreme Court will be speaking at the NAILTA conference on October 2, 2012 in Baltimore, Maryland.  For more information, please visit www.nailta.org.  Stay tuned to Thursday’s...