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From Banking and Finance Law Daily, March 3, 2015

Fee for illegal service would not be an unearned fee

By Richard A. Roth, J.D.

A fee paid for a settlement service that was provided in violation of state law would not be a fee for no service at all under the Real Estate Settlement Procedures Act, the U.S. Court of Appeals for the Eleventh Circuit has decided. Marking up the recording fee was not a violation when none of the fee was given to a person who performed no service, the court also determined. As a result, a homeowner’s suit claiming RESPA violations was properly dismissed (Clements v. LSI Title Agency, Inc., March 2, 2015, Pryor, W.).

The homeowner was complaining about fees that were charged at the closing when she refinanced her mortgage. She claimed that while Georgia law requires all real estate closing services to be performed by licensed attorneys, title company employees actually did everything. The company contracted with a law firm to provide an attorney to “witness” the closing, which did not satisfy the law. As a result, she said, the $300 fee she paid the title company was unearned because it was illegal.

The homeowner also claimed that the title company violated RESPA by marking up the recording fee, charging her $125 when the recording fee actually was only $40. According to the homeowner, the title company split the marked-up fee with the recorder’s office, and this violated RESPA.

RESPA fee-splitting ban. According to RESPA, “[n]o 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 … other than for services actually performed” (12 U.S.C. §2607(b)). The court explained that there were two aspects of the ban:

  • No service, or only a nominal or duplicative service, was performed.

  • The challenged fee was divided among at least two persons.

If any service was rendered, or if the challenged fee was retained in full by the settlement service provider, RESPA would not have been violated.

Settlement services fee. Assuming that Georgia law made it illegal to charge a settlement fee because the settlement services were performed by a non-lawyer, the fee still was not unearned, the court said. Services actually were performed by the title company, so the fee was in exchange for something. The law firm performed a service as well when it arranged for an attorney to attend the closing.

This result is consistent with the principle, frequently noted in RESPA opinions, that RESPA is not a price-control law. While the Eleventh Circuit did not invoke the principle explicitly, it is understood that a court is not to concern itself with whether a settlement fee was appropriate for the service that was performed. Performing any service other than a nominal or duplicative service in exchange for the fee will satisfy the law.

Fee mark-up. Marking up the recording fee did not violate RESPA either, the court said. The homeowner’s claim was that part of the marked-up fee was given to the recorder’s office and part was kept by the title company. However, the recorder’s office actually performed a service, the court pointed out, and it gave nothing back to the title company. Neither was given and neither accepted part of a fee other than in exchange for some service actually performed.

Standing to sue. Before considering the substantive issues, the appellate court reviewed and reversed the district court judge’s decision that the homeowner had not suffered an injury that gave her standing to sue. According to the district court judge, the settlement statement revealed that the homeowner had been given a credit at closing in precisely the amount of the fees she was challenging. That meant she was not injured.

The appellate court disagreed with that conclusion. The homeowner claimed that had the fees not been charged she would have received a refund in the amount of the credit. That unpaid refund would have constituted an injury.

The case is No. 14-11636.

Attorneys: Simon H. Bloom (Bloom Sugarman Everett, LLP) for Patricia L. Clements. Teresa Bonder (Alston & Bird, LLP) for LSI Title Agency, Inc., and Lender Processing Services, Inc. Christopher Joseph Hoffman (Carlock Copeland & Stair, LLP) for Law Offices of William E. Fair, III, LLC.

Companies: Law Offices of William E. Fair III, LLC; Lender Processing Services, Inc.; LSI Title Agency, Inc.

MainStory: TopStory ConsumerCredit AlabamaNews FloridaNews GeorgiaNews Mortgages RESPA

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