Kentucky Law Firm Wins RESPA Case Against CFPB

July 18, 2017

A federal judge ruled that Kentucky-based law firm Borders & Borders did not violate the Real Estate and Settlement Procedures Act (RESPA) and tossed out the lawsuit brought by the Consumer Financial Protection Bureau (CFPB).

U.S. District Judge Charles Simpson of the Western District of Kentucky ruled that Borders & Borders qualified for RESPA’s safe harbor provision, which shelters “affiliated business arrangements” if the arrangements are disclosed to the consumer being referred to the partner company.

“We are very pleased that the court agreed with what we've been saying for six and a half years: our affiliated business arrangements were designed and operated to be fully compliant with RESPA,” Borders & Borders said in a statement.

In October 2013, the CFPB filed a lawsuit accusing Borders & Borders for illegally paying kickbacks for real estate settlement referrals through a network of shell companies. According to the CFPB’s complaint, Borders & Borders operated nine joint ventures with the owners and managers of local real estate and mortgage broker companies, and allegedly used the joint ownership to disguise illegal kickbacks as legitimate profit sharing. The complaint alleged that when a local real estate or mortgage broker company with a pre-existing arrangement referred a homebuyer to Borders & Borders for closing or other settlement services, the law firm would arrange for the title insurance to be issued by the corresponding joint venture. The profits from the joint venture would then be split between the joint venture’s owners: the Borders principals and the referring real estate or mortgage broker.

According to the complaint, the nine joint ventures were not bona fide entities and did not have their own office space, email addresses, or phone numbers, and all nine companies shared a single independent contractor who was also an employee of Borders & Borders. The CFPB alleged each company only issued title insurance policies for homebuyers that had been referred to and by Borders & Borders, and did no advertising to attract other business. The companies performed no substantive title work, all of which was instead performed by the staff at Borders & Borders.

Simpson, however, said Borders & Borders “gave its customers timely disclosures when it referred title insurance work to the Title LLCs.”

“Given that Borders & Borders disclosed the relationship with the [joint ventures], the customers could reject the referral, and the bureau failed to show that the [joint ventures] received anything of value beyond their ownership interests, there is no genuine dispute of material fact that the [joint ventures’] arrangement with Borders & Borders qualifies as an affiliated business relationship protected” under RESPA, Simpson wrote, “and Borders & Borders is entitled to summary judgment as a matter of law.”

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