RESPA Lawyer Blog

August 15, 2014

CFPB CONSENT ORDER INVOLVING MORTGAGE ADVERTISING AND RESPA

The Consumer Financial Protection Bureau announced they entered into a Consent Order (File No. 2014-CFPB-0010) with Atlanta-based Amerisave Mortgage Corporation; Novo Appraisal Management Corp.; and Patrick Markert on August 12, 2014 for violating a series of laws including Section 1031 and 1036 of the Consumer Financial Protection Act of 2010 (CFPA), Section 8 of the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), and the Mortgage Acts and Practices Rule (MAP Rule).

The CFPB found that Amerisave Mortgage Corp., which operates primarily as an online lender, designed its website to advertise and quote mortgage rate information in a deceptive bait and switch lending manner towards consumers. The Bureau stated that Amerisave advertised specific mortgage products online by listing specific mortgage rates in rate tables publicized through the website of an unrelated third-party company (“Rate Publisher”) which compiles rate quotes and other information of mortgage lenders who use its service.

Amerisave advertised lower rates than they were actually providing to consumers but once the consumers contacted them for those rate the consumers wound up paying higher rates than what Amerisave advertised. Amerisave also ran banner or display ads on various websites advertising lower rates as well to consumers.

July 10, 2014

RESPA: FDIC FINES NEW FRONTIER BANK $70,000 FOR SECTION 8 VIOLATIONS

by Marx Sterbcow

The Federal Deposit Insurance Corporation entered into a consent order with New Frontier Bank in St. Charles, Missouri on May 5, 2014 which was recently made public. (FDIC-14-0084b and FDIC-13-151k) The FDIC ordered New Frontier Bank to cease and desist from the violating the Real Estate Settlement Procedures Act “RESPA” Section 8, 12 U.S.C. §2607 and its implementing regulation, Regulation X, 12 C.F.R. §1024.14, which is the prohibition against kickbacks and unearned fees.

The FDIC’s consent order did not mention the facts surrounding this consent order only that “the Bank shall cease all acts or practices in violation of RESPA and take all necessary steps to effect and maintain future compliance with RESPA.”

The consent agreement also ordered New Frontier Bank to reimburse all consumers who were affected by the undisclosed RESPA violations to pay an amount not less than $400 per consumer as restitution for the RESPA violations the FDIC said New Frontier Bank may have violated. The consent agreement did not state how many consumers may have been impacted. In addition to the consumer restitution New Frontier Bank was ordered to pay a $70,000 dollar penalty to the Treasury of the United States.

July 9, 2014

RESPA: NEW YORK TIMES QUOTES MARX STERBCOW ON CFPB ENFORCEMENT ACTION

by Marx Sterbcow

Sterbcow Law Group’s Marx Sterbcow was quoted in a New York Times article titled “Cracking Down on Illegal Mortgage Referrals” written by NY Times Mortgage Columnist Lisa Prevost. The article published June 5, 2014, discusses the recent RESPA regulatory enforcement actions by the Consumer Financial Protection Bureau (CFPB) against mortgage, title, real estate brokerages. The CFPB has now been involved in 12 RESPA enforcement actions since taking over from HUD in July of 2011.

Mr. Sterbcow was quoted in his description of the RealtySouth consent order: “That’s Respa 101 of what not to do,” said Marx David Sterbcow, a New Orleans lawyer specializing in Respa issues. “You don’t write it into the contracts and basically steer customers to your affiliated company.”

“Respa is intended to protect consumers from having to pay inflated costs for mortgage and closing services. In looking for violators, the bureau has shown that “they don’t care how big your company is,” Mr. Sterbcow said. “Nor do they care how small your company is.” ”

The RealtySouth consent order was an enforcement action which was triggered against RealtySouth because it inserted into it’s pre-printed contract sale form that consumers were required to use TitleSouth (RealtySouth’s affiliated title company). The language in the pre-printed contract which was only in operation for a year stated in Paragraph 5, “Title Insurance. Seller agrees to furnish Buyer a standard form owner’s title insurance policy issued by TitleSouth, LLC in the amount of the purchase price.”

This was the crux of the RESPA enforcement action although the CFPB also added a seemingly trivial charge against RealtySouth’s for not strictly adhering to the exact font and language specifications required in an affiliated business disclosure form. The CFPB argued the disclosure was modified because fonts, word capitalization requirements, and marketing slogans were either not allowed or out of compliance and deviated from the required format.

While CFPB did not identify how many consumers actually opted out of that provision in the pre-printed contract and used a third party title company it didn’t matter as the language spoke for itself which is why the RealtySouth action was commenced by federal regulators.
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June 12, 2014

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

by Marx Sterbcow

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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April 28, 2014

FEDERAL COURT SAYS OVERNIGHT DELIVERY FEES ARE SETTLEMENT SERVICES

by Marx Sterbcow

A RESPA class action lawsuit filed in the U.S. District Court for the Central District of California ruled that overnight delivery fees constituted settlement services under the Real Estate Settlement and Procedures Act “RESPA”. The case Henson v. Fidelity National Financial Inc., 2014 WL 1246222 (C.D. Cal. March 21, 2014) alleges that Fidelity has agreements with various overnight delivery companies (i.e. UPS, Federal Express, and OnTrac) which violate RESPA when Fidelity receives “marketing” fees in exchange for referring overnight delivery business to the overnight carriers through Fidelity’s escrow subsidiaries.

The lawsuit states that Fidelity is the controlling parent of various escrow subsidiaries and these escrow subsidiaries use UPS, Federal Express, and OnTrac (the “delivery companies”) to handle overnight deliveries in connection with processing and closing federally related mortgage loans. Fidelities subsidiaries then charge escrow customers for these delivery services in the customers real estate transactions. The lawsuit alleges that Fidelity has separate, written “master” agreements with each of the delivery companies through a subsidiary of Fidelity called EC Purchasing in which EC receives a split of the charges received by the delivery carriers and kickbacks in exchange for referring delivery services to the overnight delivery companies.

The lawsuit also states that because Fidelity exercises substantial control over their subsidiaries that no “marketing” services were actually performed nor did Fidelity put in place mechanisms to ensure they were performed under the master agreement. The payments were alleged to be based on the volume of business referred. The defendants argued that overnight delivery fees or express services were not in the real estate business and thus RESPA and Regulation X did not apply. The Court held that the term “settlement service” as used in Regulation X included overnight delivery services and stated the congress did not explicitly provide an exemption in RESPA for overnight delivery services and because Congress did not provide for an exemption neither should the Court.

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.

January 31, 2014

RESPA KICKBACKS: CFPB GOES AFTER LENDER FOR MORTGAGE INSURANCE KICKBACK ARRANGEMENT

by Marx Sterbcow

The Consumer Financial Protection Bureau announced they initiated an administrative proceeding against mortgage lender PHH Corporation on Thursday, Jan. 30, 2014. The CFPB alleges that PHH originated consumer mortgages it steered consumers to certain mortgage insurance companies it partnered with because PHH was incentivized with reinsurance kickback fees which violated the Real Estate Settlement Procedures Act (RESPA). The CFPB believes consumers wound up paying higher mortgage insurance premiums because of the arrangement. The CFPB believes PHH violated Section 8 of RESPA (12 U.S.C. §2607).

The CFPB filed the administrative proceeding against New Jersey-based PHH Corporation and its residential origination subsidiaries, PHH Mortgage Corporation and PHH Home Loans, LLC, and PHH’s wholly-owned subsidiaries, Atrium Insurance Corporation and Atrium Reinsurance Corporation. The CFPB investigation picked up this investigation from the US Department of Housing and Urban Development (HUD) who began investigating this practice in July of 2011.

The CFPB has been very active in its enforcement of captive mortgage reinsurance business models as HUD was with captive reinsurance title insurers business models in the mid-2000’s. Previous CFPB investigations involving mortgage insurance reinsurance models included actions against United Guaranty Corp., Genworth Mortgage Insurance Corp., Radian Guaranty Inc., and Mortgage Guaranty Insurance Corporation. The CFPB now appears to be shifting their enforcement actions against lenders who may have received money from these companies.

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;