Recent Circuit Opinions Curtail RESPA Exposure

In the recent Hazewood v. Foundation Financial Group, LLC, 551 F.3d 1223 (11th Cir. 2008) and Arthur v. Ticor Title Ins. Co. of Fla., 2009 U.S. App. LEXIS 13090 (4th Cir. 2009) opinions, the 11th and 4th Circuit limited lenders and tile insurers’ Real Estate Settlement Procedures Act ("RESPA") 12 U.S.C. § 2601, et seq. exposure.

RESPA protects consumers "from unnecessarily high settlement charges caused by certain abusive practices". RESPA’s prohibitions are limited to "certain abusive practices" (but not excessive fees in general) and bars settlement service providers from giving "kickbacks" for referrals or charging or splitting fees for unperformed services.

Fortifying Filed Rate Doctrine Defense

Although some argue that it provides broad relief for "overcharges" and is aimed at reducing real estate settlement services costs, RESPA is silent on whether a violation occurs for charging fees above the market rate, above the rate filed with and approved by a state regulatory authority ("Filed Rate"), or otherwise excessive.

In affirming the RESPA claim dismissal, the Hazewood court held that RESPA "does not provide a cause of action for excessive fees—that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider."

Although the Hazewood plaintiff alleged charging fees in excess of the rates defendant had filed with, and approved by, the state, the 11th Circuit rejected dividing fees into "reasonable" and "unreasonable" portions by ruling that plaintiffs’ conceding "that a service is actually performed in exchange for a settlement fee" may not avoid RESPA claim dismissal "by arguing that the 'excessive' portion of the fee was 'unearned'".

While unremarkable on its face - - RESPA is neither a "price-control statute" nor prohibits overcharges or fees exceeding provider's Filed Rate- - Hazewood is helpful when viewed in light of the Filed Rate defense, i.e., that a plaintiff who is not overcharged for settlement services—as measured by service provider's filed rate—cannot pursue a RESPA claim.

Hazewood extends this approach in holding that, even if defendant charges above the state- regulated Filed Rate, there is no RESPA violation because any claim must be brought under state law.

Relaxation of Title Insurers’ RESPA Exposure

The Arthur v. Ticor Title Ins. Co. of Fla. Court held that a title insurer is not liable under RESPA despite splitting fees and charging fees above its Filed Rate when both the insurer and "split fees recipient" performed settlement services.

Like the Hazewood Court, the 4th Circuit rejected the argument that fees could be divided into a reasonable, legal portion (the Filed Rate amount) and unreasonable, illegal portion (the amount exceeding the Filed Rate) ruling that RESPA "does not authorize a court to divide charges into valid and invalid parts and to decide that the invalid part is not for services performed" or "create liability for improper pricing".

The 4th Circuit also rejected the assertion that fee-splitting constituted a "kickback" in violation of RESPA because the split fees agents "indisputably performed settlement services".