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Daniel Fisher of Forbes Magazine wrote an article today titled ” “Sleeper” Case Asks Whether Plaintiffs Can Sue Without An Injury.” Mr. Fisher’s article highlights the Edwards v. First American case and discusses the positive impact a Supreme Court’s ruling would have for corporations facing civil and class action lawsuits from consumers who might have a hard time showing actual injury in fact damages.

The Edwards case stems from a real estate settlement procedures act (RESPA) class action where the Edwards’ were required to purchase a title insurance policy from First American. First American’s actions allegedly violated Section 8(c)(2) of RESPA where the federal rules state that affiliated businesses can’t require that borrowers use their affiliated businesses and the civil penalty for violating this rule is treble damages on all fees paid to First American plus attorney’s fees.

The US Supreme Court is looking at standing to sue under Article 3 of the US Constitution in the Edwards case. “First American argues Edward suffered no harm and therefore has no standing to sue under Article III of the Constitution. Under Article III federal courts are limited to hearing “cases” or “controversies” and the Supreme Court has since decided that means somebody who has suffered actual harm or is in imminent danger of it.“

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Reporter Avi Salzman with Barron’s is reporting that Bank of America may file for bankruptcy protection for it’s Countrywide subsidiary if litigation costs from Countrywide threaten Bank of America. Bank of America is the parent company of Countrywide but it is a separate legal entity. If Bank of America (NYSE: BAC) decides to declare bankruptcy it would only affect the Countrywide division not the entire company.

If Bank of America does file for bankruptcy protection for Countrywide it could have a material impact on on-going litigation involving RESPA, TILA, and other legal actions across the United States involving Countrywide. The purchase by Bank of America is widely viewed as one of the worst acquisition decisions in corporate American history.

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Prospect Mortgage reached a settlement today with the U.S. Department of Housing and Urban Development (HUD) over Prospect’s use of the Series Limited Liability Company “aka Series LLC” joint venture business model. The terms of the settlement are not yet available but we will update the Respa Lawyer Blog as soon as HUD releases that information.

This is the second major settlement enforcement action in the last two days by HUD’s RESPA division which moves over to the Consumer Financial Protection Bureau on July 21, 2011. It is highly possible that other settlement actions may be announced by HUD prior to the July 21, 2011 due to stronger monetary penalties under the CFPB.

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The United States Supreme Court granted First American Financial Corporation’s Writ of Certiorari it filed in the Denise P. Edwards et al. v. First American Financial Corporation, et al. RESPA class action lawsuit today (June 20, 2011). The Supreme Court will now decide whether a plaintiff has standing to sue, on behalf of a nationwide class, when a plaintiff asserts that a real estate company violated the Real Estate Settlement Procedures Act of 1974 (RESPA) without showing the RESPA violation affected the services rendered.

The Edwards lawsuit accuses First American and others of operating an illegal kickback scheme which violated Section 8 of RESPA. The Supreme Court decision will focus strictly on Question 2 presented in the Writ of Certiorari. The issue presented in Question 2 is whether the a privte purchaser of real estate has standing to sue under Article III, Sec. 2 of the United States Constitution.

The case is First American Financial v. Edwards, 10-708.
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The United States Department of Treasury has hired Richard Cordray to lead the Enforcement Division of the Consumer Financial Protection Bureau (CFPB) which was created under the Dodd-Frank Bill. Richard Cordray was elected as the Ohio Attorney General in 2008. Cordray has filed numerous lawsuits during his tenure as the Ohio Attorney General, most notably against AIG, Marsh & McLennan, Bank of America, and Merrill Lynch which resulted in more than 2.5 billion dollars in settlements.

Given Cordray’s history it appears that he will be focusing on federal preemption of nationally chartered banks and the problems state regulators have had with their inability to enforce laws. The doctrine of preemption was used by the Office of Comptroller of the Currency as a way to stop states from enforcing rules and regulations against nationally chartered banks. He has pledged to jointly work with state attorney generals while at the CFPB in his investigations which could significantly hamper nationally chartered banks argument of federal preemption against state laws. Cordray and The American Bankers Association have opposing stances on the bank preemption issue. The underlying premise is that nationally chartered banks who engage in abusive and fraudulent tactics better be prepared for an onslaught of litigation and penalties when the enforcement team starts working with the states.

Richard Cordray’s reputation is that of a staunch advocate for consumer rights against financial services companies who break the law. Cordray is responsible for selecting the enforcement team and preparing for the exercise of enforcement powers. RESPA enforcement under Cordray appears to be a priority based on his past history and Section 6 of RESPA is a prime target for future regulatory enforcement action by the CFPB.

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The National Association of Realtors (NAR) and the Department of Housing and Urban Development (HUD) collaborated to produce a series of videos on YouTube.com which are geared at educating future home buyers on the real estate buying process. The joint effort was unveiled at the National Association of Realtors 2010 National Conference in New Orleans last week.

The first 10 minute video “Shopping for your home” features HUD associate deputy assistant secretary Teresa Baker Payne explaining the home buying process.

The second 12 minute video “Shopping for your loan” features HUD deputy assistant secretary for FHA Vicki Bott explaining what home buyers need to look for when shopping for their mortgage loan and includes a consumer friendly approach to the Good Faith Estimate “GFE.”

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The Consumer Financial Protection Bureau which will oversee the Real Estate Settlement Procedures Act (RESPA) now has a decision maker to help set up the CFPB. President Obama announced today the appointment of Harvard Professor Elizabeth Warren to implement policies and procedures to protect consumers from financial products. Ms. Warren who is widely known as the person who developed the idea for the CFPB will also be responsible for helping select a director to head up the CFPB.

Warren is considered a strong consumer advocate and her ideology has some in the financial services industry concerned. The concern reached a fevered pitch over the last two months with Republicans and the financial services industry pledged to hold up her confirmation in the Senate. Obama’s move of not appointed her to the CFBP but rather giving Warren supervisory authority of the CFPB without going through a senate confirmation process stunned her critics.

It remains to be seen how Warren will tackle the enforcement of RESPA in the near future but I suspect that we will see a huge increase in both funding and manpower in the RESPA enforcement arena.

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The United States Department of Housing and Urban Development is seeking public comments relating to Section 9: “Required Use” under RESPA. “The Real Estate Settlement Procedures Act (RESPA): Strengthening and Clarifying RESPA’s “Required Use” Prohibition Advance Notice of Proposed Rule making” was made public on June, 3, 2010.

HUD appears to be concentrating on home builder owned title and mortgage companies where homebuilders offered construction upgrades or discounts to consumers if the home buyers used their ancillary title or mortgage company. The controversy centered around a few homebuilders who offered consumers free upgrades (i.e. bonus rooms, automobiles, or other extravincentives) if the consumer used the home builders affiliated mortgage or title company. The controversy escalated when some of these free upgrades exceeded tens of thousands of dollars. The cost to use another mortgage or title company did not make sense because the consumer would lose out on the extravagant free upgrade. Some consumers felt like they had to use the home builders affiliated business because the incentive was so excessive they had no choice but to use the homebuilders mortgage company.

The affiliated business model is encouraged by HUD when the consumer saves money but some some felt like the practice that a few homebuilders engaged in did not really save the consumers money on the mortgage side because they claim the interest rates were higher.

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The U.S. Housing and Urban Development (HUD) made a number of surprising management changes last month including the shuffling of Ivy Jackson, the Director of the Office of RESPA and Interstate Land Sales to the Office of Insured Health Care Facilities. Ivy Jackson’s departure took the real estate industry by surprise and created uncertainty for state regulators who were relying on her to educate them the new RESPA regulations this year.

The Sterbcow Law Group would like to thank Ivy Jackson for her contributions over the years at RESPA. She will always be remembered as a federal regulator who was fair to the real estate industry and to consumer interests while at RESPA. Ms. Jackson’s work ethic, honesty, and experience will be missed.

HUD promoted Teresa Baker Payne to the position of Assistant Deputy Assistant Secretary and Barton Shapiro was named Acting Director of RESPA and Interstate Land Sales. Ms. Payne and Mr. Shapiro both bring experience to their new positions. Ms.Payne and Mr. Shapiro both are excellent choices for their respective roles at HUD.
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The U.S. Housing and Urban Development’s Real Estate Settlement Procedures Act (RESPA) Division released new updated FAQs on Jan. 28, 2010. The new RESPA frequently asked updated question and answers (FAQs) are in bold.

One of the new questions asks whether a loan originator can require the use of its affiliate company for the tax or flood certificate. The updated RESPA guidance says that the loan originator may not require the use of its affiliate for the tax service or flood certificate, but a loan originator may require the use of a non-affiliated provider.

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