ALTA® News: U.S. Court of Appeals Concludes That, Despite HUD Guidance
July 24, 2001
RESPA §8(b) Does Not Apply to Mark-Ups of Third Party Charges
Where Third Party Is Not Involved in the Mark-Up
In Echevarria v. Chicago Title & Trust Co., U.S. App. LEXIS 15050 (7th Cir. July 5, 2001), a federal appeals court recently concluded that RESPA §8(b), which prohibits the payment or receipt of a portion or split of a settlement service charge other than for services rendered, was not violated when a title insurer charged a consumer $45 for recordation of a mortgage but the fee actually paid by the insurer to the County Recorder was only $31.
In affirming the lower court?s dismissal of the class action complaint, the appellate court treated the extra $14 charged by the insurer as an "overcharge" and an unearned fee. Nevertheless, the three-judge panel unanimously concluded that the mark-up was not a violation of §8(b) because that section prohibits the payment of an unearned fee by a recipient of a settlement service charge to a third party who renders no services for the payment, whereas here the payment Chicago Title made to the Recorder was for services rendered by the Recorder. In the court?s view, the fact that Chicago Title may have retained a portion of the fee paid by the consumer without having rendered any services was not a violation of §8(b).
Two aspects of the decision are particularly noteworthy.
- First, despite the fact that, on several occasions, HUD has published statements indicating that the payment or retention of a portion of a fee other than for services rendered is a violation of §8(b), the court declined to give effect to those views. Language in HUD?s RESPA regulations that appeared to indicate that §8(b) was violated by the retention of any portion of a charge made to the consumer that is not justified by services rendered was construed by the court as not overriding the statutory language requiring that the recipient of the split, not the party paying the split, has to be the one performing no services. The court also determined that it did not have to give deference to a HUD statement in the Special Information Booklet that "it is also illegal for anyone to accept a . . . part of a fee for services if that person has not actually performed service for the fee."
- Second, the court?s conclusion that §8(b) does not apply to mark-ups of third party charges appears limited to the circumstance where the third party has "no involvement whatsoever with the unearned fees." In Echevarria, the County Recorder did not participate in the title insurer?s mark-up of its recording fees and, most likely, had no knowledge of the mark-up. On the other hand, if a title company (or lender or other entity) marks-up a third party?s charge with the participation or consent of the third party, the Seventh Circuit?s decision suggests that §8(b) might apply. As the court stated, "the County Recorder has not engaged in the third party involvement necessary to state a claim under RESPA §8(b)." Accordingly, if a settlement service provider (such as an appraiser, credit reporting company, title company, or other settlement service provider) participates in or facilitates the mark-up of its charges by a third party (such as a lender or vendor management company), the Echavarria decision may provide little comfort.
Finally, despite the court?s conclusion that §8(b) does not apply in certain mark-up situations, HUD has made clear that it does not agree with this view (which has also been expressed by district courts in other circuits), and that it believes that §8(b) applies even where a single settlement service provider charges unearned or excessive fees that are not shared with any third party. It is possible that HUD may respond to this decision in some fashion that would get its views adopted by the courts. Moreover, even apart from RESPA, parties who mark up the charges of other service providers must also consider the possible applicability of FHA or VA limitations and state unfair trade practice laws, some of which provide for civil liability and treble damages.