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Appeals Court Rules in Favor of Lender in RESPA Case

Ninth Circuit weighs in on overcharges under RESPA

March 17, 2010

Partner, Patton Boggs LLP

A federal appeals court has ruled in favor of a mortgage lender that was accused of charging excessive fees in violation of the Real Estate Settlement Procedures Act.

The U.S. Court of Appeals for the Ninth Circuit determined in a March 9 opinion that Section 8(b) of RESPA does not prohibit overcharges. The decision was rendered in the case of Martinez v. Wells Fargo Home Mortgage.

A couple that had obtained a mortgage loan from Wells Fargo alleged that an $800 underwriting fee that they were charged was excessive because it was not reasonably related to Wells Fargo's actual costs of performing the underwriting and, thus, violated RESPA Section 8(b), as well as California's Unfair Competition Law.

Section 8(b) of RESPA contains a fee splitting prohibition under which no person shall give and no person shall accept any portion, split or percentage of any charge made or received for a settlement service other than for services actually performed. In Statement of Policy 2001-1, the U.S. Department of Housing and Urban Development interpreted Section 8(b) to apply to three separate situations:
  1. Two or more persons split a fee for settlement services, any portion of which is unearned.

  2. One settlement service provider marks-up the cost of the services performed or goods provided by another settlement service provider without providing additional actual, necessary, and distinct services, goods, or facilities to justify the additional charge.

  3. One service provider charges the consumer a fee where no, nominal, or duplicative work is done, or the fee is in excess of the reasonable value of goods or facilities provided or the services actually performed.

The case involved the third element of HUD's interpretation, which commonly is referred to as describing an "overcharge." The Ninth Circuit concluded that Section 8(b) of RESPA prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money, and cannot be read to prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed.

In rejecting the claim that Section 8(b) prohibits overcharges, the Ninth Circuit agreed with decisions made by the U.S. Courts of Appeals for the Second, Third and Eleventh Circuits in prior cases.

The Ninth Circuit also found the claims of the plaintiffs that the alleged overcharge violated the California UCL were preempted by the National Bank Act based on regulations of the Office of the Comptroller of the Currency that address the lending authority of national banks.

Finally, the plaintiffs' alleged that the overcharge together with a failure of Wells Fargo to disclose its actual costs violated various state and federal laws and, thus, constituted a "unlawful" business practice under section 17200 of the California UCL. With regard to the underlying violations of law alleged by the plaintiffs as the basis for their 17200 claim, the Ninth Circuit determined that the claims were either preempted by the National Bank Act or there was no actual violation of law.

Consequently, the Ninth Circuit determined that the lower court had correctly determined that plaintiffs had failed to state a claim.

Richard J. Andreano is a partner at the Washington, D.C.-based law firm of Patton Boggs LLP. He focuses on regulatory compliance, transactional and administrative matters for residential housing and financial clients. He graduated with honors from the The George Washington University Law School, J.D., in 1983.
e-mail Rich at [email protected]
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