RESPA: Private Suits for Markups - John Burnett

RESPA: Private Suits for Markups
John Burnett

Section 8(b) of the Real Estate Settlement Procedures Act, familiarly known as RESPA's charge-splitting provision, has proven to be fertile ground for bank examination citations and lawsuits alike. In the case of Francis Santiago et al v. GMAC Mortgage Group, Inc., et al, the Third Circuit Court of Appeals on August 4, 2005, filed its decision concerning causes of action under RESPA for markups and overcharges.

In January 2002, Santiago obtained a loan for his home from GMAC. GMAC charged and collected fees for settlement services, which included an $85 tax service fee, a $20 flood certification fee, and a $250 loan funding fee. Each of the charges was fully disclosed. Santiago sued GMAC, claiming that the lender "marked up" the tax and flood certification services obtained from third-party vendors, and that GMAC "overcharged" for the funding service, which Santiago claimed was reasonably worth only $20.

RESPA ? 8(b) No person shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.
--12 U.S.C. ? 2607(b) Santiago argued that Section 8(b) provides a cause of action under RESPA on the alleged funding fee overcharge based both on the statutory language and on HUD's Statement of Policy 2001-1. GMAC argued that RESPA prohibits the cause of action and that deference to HUD's policy statement is not warranted. The appeals court found no provision for a cause of action for overcharges in the plain language of Section 8(b), and therefore found no need to even consider HUD's Statement of Policy (which was not affected by the court's decision).

That left Santiago's allegation that Section 8(b) allows a cause of action for markups. GMAC's argument that the statutory language addresses kickbacks and not markups was not persuasive for the court, which noted that whether the lender retained a portion of the fee or received a kickback of a portion of the fee should be immaterial, since the consumer, the lender and the service provider are in the same economic position regardless of the form of the fee transactions. The court also reasoned that the separate language of Sections 8(a) (prohibiting the acceptance of "any fee, kickback or thing of value") and 8(b) (prohibiting acceptance of "any portion, split, or percentage of any charge") is convincing that Section 8(b) deals with other than kickbacks.

More Analysis Needed
When is a Markup Legal?