September 2009 Vol. 2, No. 9

Real Estate and Title Insurance News

RESPA; Title Insurance

Excessive Fees - Beyond RESPA's Reach
by Alexander Spalding, ATG Law Clerk

The Eleventh Circuit court of appeals has joined several lower courts in holding that a title insurer may not be successfully sued for illegally splitting a fee by charging a title insurance premium that is more than the filed rate. In its holding, the Eleventh Circuit joined with the Second, Third, Fourth, Seventh, and Eighth Circuits in holding that Section 8b of the Real Estate Settlement Procedures Act (RESPA) does not include excessive fees under its provisions because it is not aimed at price control. The holding was made clear in a series of three similar cases, each of which was decided upon the same reasoning.

RESPA is a federal law passed in 1974. The law was created to combat unsavory techniques during the closing of real estate, often in the form of bait-and-switch or kickbacks between lenders, realtors, title insurance companies, and contractors. The main power of the act derives from its Section 8 provision that prohibits kickbacks. In the Eleventh Federal Circuit, multiple cases were brought from parties that were overcharged in their premiums for title insurance. The core of these complaints rested on the argument that the "excess" fee had been charged for services not performed — in violation of RESPA.

InMoody v Commonwealth Land Title Ins. Co., Moody alleged that she was charged a higher fee for her policy than her policy premium was under her local state law.Moody v Commonwealth Land Title Ins. Co., 284 Fed Appx 735 (11th Cir 2008). As such, she alleged that the remaining cost, unaccounted for under the policy premium, was for "other than services actually performed," triggering Section 8 of RESPA. However the court noted that Section 8 did not govern excessive fees specifically because it was not designed to be a price control provision. The court explicitly rejected the argument that courts should break single fees into various components for analysis by asking if part was "earned" and the other "unearned." The section requires a plaintiff to allege that no service was provided for the fee - not that they were charged too much for it.

The series of decisions turn on how the circuit has begun to interpret Section 8 of RESPA, which reads that, "[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received &€¦ other than for services actually performed." Several suits were brought alleging that taking excess fees might violate this provision, but the courts have clearly disagreed. InFriedman v Market Street Mortg. Corp., the court affirmed a district court's dismissal of such a claim.Friedman v Market Street Mortg. Corp., 520 F 3d 1289 (11th Cir 2008). The plain language, according to the court, requires that the plaintiff allege the fee has been "shared or split" with another party.

To this effect, even where funds were allotted for another party and only partially sent (for instance, the insurer bills $500 for a service but spends only $200), Section 8 is an inappropriate remedy to consider. A plaintiff cannot show that only part of a fee was unearned because this asks the court to split the fee into smaller components for consideration. If any of the fee was justified then the party has not done "nothing" as required by the statute, and RESPA is not the proper remedy. Under the court's reasoning, even if the insurer "could not be credited with the actual delivery, [the insurer] benefitted the borrowers by arranging for third party contractors to perform the deliveries. Under these circumstances, we find it impossible to say that [the insurer] performed no services for which its retention of a portion of the fees at issue was justified." As such, the court outlined a clear black-letter rule. "[W]e hold that subsection 8(b) does not govern excessive fees because it is not a price control provision."

The court went on to explain its decision. Nothing in the language of RESPA authorizes courts to allow plaintiffs to divide fees into reasonable and unreasonable components. Whatever its size or justification, for the purposes of RESPA, such a fee is "for" the services rendered. Given that Section 8 allows for enhanced damages, it would be incongruous with statutory interpretation to give it an expansive reading by creating this kind of ex post facto division of fees. Section 8 is aimed explicitly at "kickbacks and referral fees." Instead, the treble damages and the clear language imply that the provision should be read literally and narrowly in light of its intended purpose.

The Eleventh Circuit has established and reinforced the rule. In addition to those cases, it ruled in short but powerful opinions in other cases as well. InWilliams v Countrywide Home Loans, Inc., the court held that "[a]ppellants merely claim that they were charged an inflated fee for a service that was indisputably provided &€¦ [a]ppellants' claims are barred by our prior precedent, and the district court rightly found that such claims are beyond the purview of RESPA."Williams v Countrywide Home Loans, Inc., 284 Fed Appx 724 (11th Cir 2008). See alsoMorrisette v Novastar Home Mortg., Inc., 284 Fed Appx 729 (11th Cir 2008).

The Eleventh Circuit now joins majority of circuits, including the Seventh, in limiting the reach of Section 8 and its enhanced treble damages provision. Under such a suit the plaintiff must allege that compensation was provided without any service in exchange. Attempts by plaintiffs who have potentially been overcharged, even egregiously, cannot satisfy the clear language of the statute, and must fail.

For a general overview of RESPA, see "The Real Esate Settlement Procedures Act (RESPA)" in the August 2003 issue ofthe ATG Concept.

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[Last update: 9-29-09]