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.
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.