CONSUMER FINANCIAL PROTECTION BUREAU: RESPA

June 12, 2014

CFPB: RESPA SECTION 8 CONSENT ORDER AGAINST TITLE AGENCY IN NEW JERSEY FOR ILLEGAL KICKBACKS AND UNEARNED FEES

The Consumer Financial Protection Bureau announced today another consent order involving violations of Section 8 of the Real Estate Settlement Procedures Act “RESPA”. Administrative Proceeding File No. 2014-CFPB-0006 “In the Matter of Stonebridge Title Services, Inc.” The CFPB reviewed the business practices of Stonebridge Title Services, Inc. of Parsippany, New Jersey and its two owners Bruce Dostal and Cesare Stefanelli operated the title agency to determine if Stonebridge Title was violating RESPA Section 8(a) “illegal kickbacks” and 8(b) “unearned fees”. Stonebridge Title is an appointed title agent for several national title insurance underwriters who paid referral commissions of up to 40% of the title insurance premiums they received from consumers to Independent Salespeople for the referral of title insurance work to Stonebridge Title.

The CFPB stated the Independent Salespeople had or developed relationships with entities, typically law firms, and referred these entities to Stonebridge for title insurance and related services on behalf of consumers. The commission agreements Stonebridge utilized with the Independent Salespeople were structured in a way that commissions were paid on each title order placed by a firm that the Independent Sales person referred to Stonebridge. The commission payment amounts for title insurance orders were determined solely based on the value of the title insurance premiums multiplied by a previously agreed-to commission percentage according to the CFPB consent order.

The Independent Salespeople did not perform any title services for the consumers who paid the title insurance premiums to Stonebridge. The Independent Salespeople did not provide any non-referral services for Stonebridge for which they were to receive compensation according to the order.

May 28, 2014

RESPA: CFPB ANNOUNCES AFFILIATED BUSINESS CONSENT ORDER WITH REALTYSOUTH IN ALABAMA

by Marx Sterbcow

The Consumer Financial Protection Bureau “CFPB” announced another enforcement action today against JRHBW Realty, Inc. d/b/a RealtySouth and TitleSouth, LLC (both HomeServices of America companies) for violating Section 8 Real Estate Settlement Procedures Act , 12 U.S.C. §2607, and its implementing regulation, 12 C.F.R. Part 1024 (formerly codified at 24 C.F.R. Part 3500)(collectively, RESPA).

Administrative Proceeding File No. 2014-CFPB-0005 “In the Matter of JRHBW Realty, Inc., doing business as RealtySouth; TitleSouth LLC found that RealtySouth used illegal Affiliated Business Disclosure Statements and inserted language in the RealtySouth purchase agreements which mandated the use of TitleSouth both of which violate RESPA.

RealtySouth is a real estate brokerage company operating in the state of Alabama who also owns another company, TitleSouth LLC, which provides title closing services in Alabama. The CFPB made note in the consent order that the President of TitleSouth also is the General Counsel of RealtySouth.

RealtySouth and TitleSouth were order to pay a fine of $500,000 to the CFPB and faced additional requirements as identified below. It should be noted that this isn’t RealtySouth’s first experience with RESPA as it was involved in the infamous RESPA class action case: Vicki V. Busby versus JRHBW Realty, Inc. d/b/a Realty South involving administrative brokerage fees.
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February 10, 2014

RESPA: CFPB ISSUES CONSENT ORDER AGAINST MORTGAGE LENDER FOR ILLEGAL OFFICE SPACE LEASE AGREEMENT

by Marx Sterbcow

The Consumer Financial Protection Bureau “CFPB” issued a Consent Order against Fidelity Mortgage Corporation “FFMC” and Mark Figert on January 16, 2014 for engaging in illegal business practices which violated Section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. §2607 “RESPA”. The CFPB stated that Fidelity Financial Mortgage Corporation, which is based in St. Louis, Missouri, entered into a office-rental agreement with the Bank of Sullivan.

The CFPB described the illegal office space lease agreement between FFMC and Bank of Sullivan as a rental arrangement based the volume of successful mortgage transactions that FFMC would originate out of the Bank of Sullivan’s office. The parties discussed anticipated loan volume and a pipeline of referrals under this office space rental agreement. The parties negotiated a daily rental rate of $200.00 and the lease agreement contained an exclusivity clause which required the Bank of Sullivan to only promote FFMC and FFMC could only promote the Bank of Sullivan.

The office space consisted of an interior office surrounded by bank personnel. FFMC also did not exclusively use the bank’s office to meet bank related borrowers. The CFPB stated that FFMC met Bank of Sullivan borrowers at a variety of locations, including coffee shops. The office rental agreement between March 2012 and November of 2012 showed that Fidelity had originated approximately 20 loans resulting an average monthly rental amount of $1,350.00 per month. The monthly office space rental amount fluctuated each month (from $800 to $2000 per month). The CFPB conducted a investigation into what the prevailing monthly rental rate was in the market place for office of similar stature and the found a monthly amount ranging from $600 to $900 a month which was substantially lower than the average monthly amount Fidelity had paid the Bank of Sullivan under this office space rental agreement. The rental agreement the CFPB violated RESPA Section 8(a) which prohibits giving a fee, kickback or thing of value in exchange for a referral of business related to a real estate settlement service.

January 31, 2014

RESPA: FEDERAL COURT CERTIFIES MARKETING AGREEMENT CLASS ACTION

by Marx Sterbcow

The United States District Court for the District of Maryland, Northern Division certified a Real Estate Settlement Procedures Act “RESPA” class action lawsuit on Tuesday, Jan. 28, 2014 involving marketing agreements between a “Team” of real estate agents “and Lakeview Title Company, Inc. The Creig Northrop Team, PC (a/k/a The Northrop Team) is a team of independent contractor real estate agents who work for Long & Foster Real Estate, Inc.. The class action lawsuit arises out of an alleged scheme for a team of real estate agents to receive over half million dollars in illegal kickbacks from a title insurance company for referrals over a period of 13 years.

Patrick Baehr, et al., v. The Creig Northrop Team, P.C., et al. (Civil No: 1:2013cv00933). Judge William D. Quarles is the presiding judge in this case.

The allegations specifically state that the defendants “used a ‘sham employment arrangement and a sham marketing agreement’ ‘to generate unearned fees and kickbacks.'” The employment agreement allegation involves Carla Northrop who was a full-time employee of the Northrop Team but secretly received payments from Lakeview Title under an employment agreement, even though Ms. Northrop allegedly did not perform any services or actual work for Lakeview Title nor was she provided an office, telephone number, or email address showing she was working for Lakeview Title. The employment agreement was not disclosed to the plaintiffs in this case. These allegations if proven would likely violate 12 U.S.C. §2607 of RESPA which is the prohibition against kickbacks and unearned fees section.

December 10, 2013

2014 REGULATORY OUTLOOK: COMPLIANCE, ENFORCEMENT, AND PRESSURE POINTS WEBINAR

by Marx Sterbcow

The Dodd-Frank Update and The Legal Description legal publications at October Research, LLC have teamed up to host a 90-minute federal regulatory outlook webinar for mortgage, title insurance and settlement services professionals. This in-depth training features two top compliance attorneys who will educate participants on significant regulations impacting the industry in 2014. The webinar will be held on Tuesday, December 10, 2013 from 2:00-3:30 PM EST.

Speakers Mitch Kider, of Weiner Brodsky Kider PC, and Marx Sterbcow, of The Sterbcow Law Group, will define significant regulations, what companies should be doing now to prepare and what the regulatory landscape will look like as we move into yet another year of complying with thousands of pages of new and existing regulations. Topics will include:

•CFPB enforcement actions: Who’s at risk and what to expect;

October 31, 2013

Office of the Comptroller of the Currency releases Vendor Management Bulletin

by Marx Sterbcow

On October 30, 2013, the Office of the Comptroller of the Currency “OCC” issued a bulletin on “Risk Management Guidance” which will have wide ranging implications for all vendors of national banks and federal savings associations. The bulletin provides new guidance for assessing and managing compliance risks associated with third-party relationships. A 3rd party relationship is any business arrangement between a banks and another entity, by contract or otherwise.

3rd party relationships include activities that involve outsourced products and services, use of independent consultants, networking arrangements, merchant payment processing services, services provided by affiliates and subsidiaries, joint ventures, and other business arrangements where the bank has an ongoing relationship or may have responsibility for the associated records. Affiliate relationships are also subject to sections 23A and 23B of the Federal Reserve Act (12 USC 371c and 12 USC 371c-1) as implemented in Regulation W (12 CFR 223). Third-party relationships generally do not include customer relationships.

The OCC stated that it “expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank’s use of 3rd parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws.”

The OCC released the bulletin in response to the on-going concern that banks were continuing to increase the number and complexity of third party relationships with both foreign and domestic 3rd parties. Specifically they highlighted:
(1) outsourcing entire bank functions to third parties, such as tax, legal, audit, or information technology operations;
(2) outsourcing lines of business or products;
(3) relying on a single third party to perform multiple activities, often to such an extent that the third party becomes an integral component of the bank’s operations;
(4) working with third parties that engage directly with customers;
(5) contracting with third parties that subcontract activities to other foreign and domestic providers;
(6) contracting with third parties whose employees, facilities, and subcontractors may be geographically concentrated; and (7) working with a third party to address deficiencies in bank operations or compliance with laws or regulations.

The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has:
(1) failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships.
(2) failed to perform adequate due diligence and ongoing monitoring of third-party relationships.
(3) entered into contracts without assessing the adequacy of a third party’s risk management practices.
(4) entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues.
(5) engaged in informal third-party relationships without contracts in place.

These examples represent trends whose associated risks reinforce the need for banks to maintain effective risk management practices over third-party relationships.
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October 14, 2013

MARX STERBCOW TO SPEAK AT THE 2013 ANNUAL CONFERENCE FOR THE NATIONAL COUNCIL OF STATE HOUSING AGENCIES

by Marx Sterbcow

Marx Sterbcow, Managing Attorney of the Sterbcow Law Group LLC, has been selected to speak on a panel at the National Council of State Housing Agencies’ 2013 Annual Conference & Showplace at the New Orleans Marriott Hotel on Tuesday, October 22, 2013 from 9:30am-10:45am. The panel entitled “Dodd-Frank Update: Are You Ready?” will consist of Howard Zucker of Hawkins Delafield, Charles Carey of Mintz Levin, and will be moderated by Lee Ann Smith who runs the single family programs for the Oklahoma Housing Finance Agency.

August 27, 2013

MARX STERBCOW AND CHARLES CAIN TO PRESENT AT LOUISIANA LAND TITLE ASSOCIATION’S (LLTA) ANNUAL CONFERENCE ON MARKETING SERVICES AGREEMENTS AND RESPA COMPLIANCE

by Marx Sterbcow

Marx Sterbcow, Managing Attorney at Sterbcow Law Group, and Charles Cain, Of Counsel to Sterbcow Law Group and Senior Vice President to WFG National Title Insurance Company, have been selected by the Louisiana Land Title Association (LLTA) to speak at the LLTA’s Annual Conference on the topic of real estate settlement procedures act (RESPA) compliance involving marketing service agreements. They will discuss the latest issues surrounding the use of Marketing Agreements and whether an enforcement action or guidance bulletin by the CFPB involving the use of these agreements may be forthcoming.

The presentation will discuss what a typical Marketing Agreement is; how the HUD interpretive rule on home warranties impacts Marketing Services Agreements, identifying red flags in MSAs, and the impact the Federal Financial Institutions Examination Council (FFIEC) third party social media compliance bulletin may have on your marketing agreement.

The LLTA Conference is being held at the Hotel Monteleone in New Orleans on Dec. 4-6, 2013.

May 17, 2013

CFPB RESPA ENFORCEMENT ACTION ALERT

by Marx Sterbcow

The Consumer Financial Protection Bureau “CFPB” ordered a Texas homebuilder, Paul Taylor, to pay $118,194.20 he received in kickbacks for referring mortgage origination business to Benchmark Bank and to Willow Bend Mortgage Company in violation of the real estate settlement procedures act “RESPA”. The CFPB also prohibited Paul Taylor from engaging in future real estate settlement services, including mortgage origination.

The CFPB said Paul Taylor received illegal referral fees through partnerships with Benchmark Bank and Willow Bend Mortgage Company. Taylor and Benchmark Bank created and jointly owned Stratford Mortgage Services, LC, which claimed to be a mortgage originator. The CFPB stated that Taylor and Willow Bend were created and jointly owned a company called PTH Mortgage Company. The CFPB stated that both entities were shams designed to allow Taylor to receive the kickbacks. Pat Taylor’s homebuilding company, Paul Taylor Homes, then referred mortgage origination business to the sham entities but the work was actually performed by Benchmark Bank and Willow Bend Mortgage Company. The Consumer Financial Protection Bureau said the kickbacks were passed through the sham entities back to Taylor through profit distributions and as a payment through a “service agreement.”

Of particular note is the CFPB’s emphasis on payment via a “service agreement” in this settlement and of the language “employees in a position to refer customers or potential customers to settlement providers.” This could be a hint at where the CFPB is headed next in their enforcement actions.

April 12, 2013

RESPA CONFERENCE: MARX STERBCOW TO PRESENT AT NATIONAL SETTLEMENT SERVICES SUMMIT IN CLEVELAND, OHIO

by Marx Sterbcow

Attorney Marx Sterbcowof the Sterbcow Law Group will lead a panel presentation along with Attorney Jeff Arouh of McLaughlin & Stern at the October Research Corporation’s National Settlement Services Summit being held at the Marriott at Key Center in Cleveland, Ohio on June 11, 2013. The session titled “Strategic Alliances and the Future of Affiliated Businesses” will offer practical guidance on the issues surrounding affiliated businesses and their future under the Qualified Mortgage (QM) and Qualified Residential Mortgage proposals under the Dodd-Frank Act and we will examine who the winners and losers are in the affiilated business industry. The session also discusses why lending compliance under the new federal rules and regulations may be fueling growth in the creation of new affiliated businesses even with the 3% lender affiliated business arrangement annual percentage rate (APR) cap on points and fees restriction.

For more information and on-line registration, please go to: 2013 National Settlement Services Summit.