The United States Supreme Court issued a significant opinion for the residential mortgage industry in Freeman v. Quicken Loans, Inc., No. 10-1042 (May 24, 2012). The Supreme Court ruled that to recover under Section 8(b) of the Real Estate Settlement Procedures Act (RESPA) for an allegedly unearned fee charged by a settlement-service provider, the consumer must demonstrate that the fee was divided between the settlement-service provider and one or more third parties. Not only does this decision eliminate a split among the Circuit Courts of Appeals, it also expressly rejects a long-standing interpretation of § 8(b) by the United States Department of Housing and Urban Development (HUD).
Justice Scalia, writing for a unanimous Court, held that Section 8(b) of RESPA, 12 U.S.C. § 2607(b), applied only to fee splitting between two or more persons. According to the Court, Section 8(b) described "two distinct exchanges," one between the consumer and the settlement-service provider and the second between the provider and a third party. Further, the statutory language "portion, split, or percentage" dictated that, in the second exchange, the fee or charge must be "divided" between the settlement-service provider and a third party in order to fall under the statutory prohibition. Therefore, a plaintiff bringing suit under § 8(b) "must demonstrate that a charge was divided between two or more persons."
Factual and Procedural Background
In 2008, three married couples filed actions against Quicken Loans in Louisiana state court. The couples alleged that Quicken had charged them fees-a "loan discount fee," "loan processing fee," or "loan origination fee"-for which Quicken provided no services. The consumers argued that this violated § 8(b). Quicken removed the three cases to federal court, where the cases were consolidated.
The district court granted summary judgment to Quicken. The court ruled that § 8(b) only covers fees that are split with another party. Because the consumers alleged only that Quicken charged and kept an unearned fee, and did not allege any splitting of the fee with a third party, the court concluded that RESPA § 8(b) did not apply.
A divided panel of the Fifth Circuit Court of Appeals affirmed the district court's grant of summary judgment. The consumers petitioned for certiorari, and the Supreme Court agreed to hear their appeal.
Read the full text of Fulbright's Alert online.
This article was prepared by Brent Lindahl (email@example.com or 612 321 2254) and Bob Pratte (firstname.lastname@example.org, 612 321 2800 or 202 662 0200) from Fulbright's Litigation Practice Group and Fulbright's Class and Group Actions Practice Group. If you have questions, please contact Mr. Pratte or Mr. Lindahl or any of our other financial services attorneys.
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