Sylvia Hsieh with Lawyers USA recently interviewed several attorneys from across the United States on how the new Real Estate Settlement Procedures Act (RESPA) regulations have created confusion for both the real estate industry and for consumers. Hsieh’s article “New Real Estate Settlment Procedure Act regs stir confusion, frustration” is a good article on how the rule is creating many challenges. For disclosure purposes she also interviewed Marx Sterbcow with the Sterbcow Law Group LLC for this article.
RESPA: DEPUTY DIRECTOR IVY JACKSON IS SHUFFLED OUT OF RESPA DIVISION
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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RESPA CLASS ACTION LITIGATION: CLASS ACTION CERTIFICATION DENIED IN CARTER V. WELLES-BOWEN REALTY, INC
The United States District Court for the Northern District of Ohio denied certifying a Real Estate Settlement Procedures Act “RESPA” class action lawsuit on March 11, 2010. The Carter v. Welles-Bowen Realty, Inc., case No. 3:05 CV 7427, consolidated No. 3:09 CV 400, 2010 WL 908464 (Northern District of Ohio) is a case where the plaintiffs asserted that Welles-Bowen Realty, Inc was engaged in operating illegal affiliated business arrangements (aka sham AfBAs) which is a violation of RESPA Section 8(a) and 8(b) (12. U.S.C. 2607 (a) and (b)).
Judge Jack Zouhary’s reasoning for his latest denial of class certification in this RESPA lawsuit is controversial because he believes that class actions are not a proper method of litigating RESPA civil suits. Judge Zouhary’s partially based his decision to deny class certification because it was his opinion that state and federal regulators should prosecute RESPA claims not class action litigation. The controversy surrounds the opinion because the Real Estate Settlement Procedures Act does allow for civil class action lawsuits. State and federal regulators routinely rely on class action lawsuits to help them in their investigations the loss of this informational stream may have an adverse impact on the consumers some believe if this ruling is universally adopted across the United States.
It should be noted that the Court was overruled once before in this case by the U.S. Court of Appeals for the Sixth Circuit on the issue of whether a RESPA class action requires a concrete financial injury in fact. The question is whether the plaintiffs will appeal this ruling or will they find another way to continue on but avoid this particular Court.
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RESPA CLASS ACTION LAWSUIT DISMISSED ON OVERCHARGING ISSUE
The United States Court of Appeals for the 9th Circuit ruled in favor of Wells Fargo Home Mortgage Inc., WFC Holdings Corporation, Wells Fargo & Company, and Wells Fargo Financial Services Inc. on the issue of whether overcharging a settlement service fee to the consumer violates the real estate settlement procedures act (RESPA). The RESPA fee at issue was an $800.00 dollar “underwriting fee” which was charged to the borrowers in Martinez v. Wells Fargo Continue reading
RESPA: UPDATED RESPA RULE FAQs RELEASED ON JAN. 28, 2010
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.
RESPA REFORM QUESTION: WHERE DOES THE SELLER PAID TRANSFER TAX CHARGE ON THE HUD-1 AND GOOD FAITH ESTIMATE (GFE) GO?
Three weeks have gone by since the new RESPA Regulations went into effect and the most commonly asked question we have encountered thus far is how are Seller Paid Transfer Tax Charges shown.
The Frequently Asked Questions “FAQs” state that “All charges typically paid by the borrower must be disclosed on the Good Faith Estimate regardless of whether the charges will be paid by the borrower, seller, or other party?” The FAQ under Section 4 & 5 (see pages 34 & 35): Right to Cure Tolerance Violations has caused a great deal of confusion in some areas of the country on the issue of where to put the transfer tax fee. The confusion centers on whether the transfer tax fee has to be disclosed on the borrower’s Good Faith Estimate even if the seller is paying for 100% of the transfer tax.
In some areas of the United States the local custom or tradition in a real estate closing has been to make the seller pay for the entire or a portion of the transfer tax or there is language in the real estate contract stating the seller is to pay for all or part of the transfer tax.
RESPA: HUD RELEASES NEW 49 PAGE SETTLEMENT COST BOOKLET
The Department of Housing and Urban Development (HUD) released the new Settlement Cost Booklet. The 49 page informational booklet must be delivered to consumers within three days of the application along with the Good Faith Estimate (GFE) for a mortgage loan by their lender or mortgage broker. Even though the HUD informational guide was released on Dec. 16, 2009 it must be used beginning on Jan. 1, 2010. Failure to provide the new HUD booklet to consumers within three days of the loan application is a violation of the Real Estate Settlement Procedures Act (RESPA) Section 5.
An electronic copy of HUD’s Settlement Cost Booklet can be sent to the borrower electronically in lieu of the printed booklet.
RESPA: HUD ANNOUNCES NEW RESPA OUTREACH CAMPAIGN
The U.S. Department of Housing and Urban Development announced that it would be holding a Real Estate Settlement Procedures Act (RESPA) outreach campaign for real estate industry compliance issues last week.
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RESPA: HUD OFFICIALLY DELAYS “HUD ENFORCEMENT” OF NEW RESPA REFORM RULE
HUD announced today a delay in “HUD ENFORCEMENT” on the new RESPA Rule which goes into effect on Jan. 1st, 2010 on FHA loans. We need to highlight the fact that only HUD Enforcement of the new RESPA rule has been delayed for 120 days on FHA loans. Civil litigation on the new RESPA Rule goes into effect on Jan. 1st, 2010 and therefore is not delayed.
We applaud HUD for delaying enforcement of the new rule for 4 months it still exposes companies that do not implement the new changes to potential civil litigation issues for not complying with the new rule.
Another RESPA attorney said it best: “Better pin on your badge and strap on your gun looks like HUD will look to the plaintiff’s bar to bring the heat in the first 4 months.”
Below is a copy of the HUD press release:
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RESPA REFORM: IVY JACKSON ISSUES CLARIFICATION ON YIELD SPREAD PREMIUM CREDIT TO BORROWER ISSUE
The Director of the Office of RESPA and Interstate Land Sales for the U.S. Department of Housing and Urban Development, Ivy Jackson, clarified an major issue today that addresses industry confusion over the Yield Spread Premium “YSP”. Several wholesale lenders issued guidance that the new RESPA restrictions required anyone who is not funding their own loan to have all the YSP, any money made on the interest rate, credited to the borrower. Some wholesale lenders were under the belief that anyone who brokered a loan would not be allowed to make any money on the loans interest rate or YSP.
For example under the current rule if the par rate today was 5.5% and its paying 100.500% that the broker would make their origination of 1% plus .5% on th rate in YSP. However, some wholesale lenders have been issuing guidance to mortgage brokers throughout the country that say the new RESPA restrictions forces the loan originator to credit the .5% YSP to the borrower at closing. This is not accurate as Ivy Jackson clarifies below:
Ivy Jackson said this is not accurate and states that “while true that any YSPs are now shown as a credit to the borrower in Box 2 under “Your Adjusted Origination Charges.” The rule eliminates the 1% cap on origination charges for FHA loans.