A federal district court in Kentucky handed a victory to a Louisville, Kentucky law firm, Borders & Borders, after a long-standing legal battle with the Consumer Financial Protection Bureau over alleged Real Estate Settlement Procedures Act (RESPA) violations.
The noteworthy case will definitely gain some attention in the industry given the recent controversy around RESPA violations, with the PHH and CFPB legal battle being one of the most prominent.
According to an article in the Consumer Finance Monitor by Richard J. Andreano, Jr., “In the case, CFPB v. Borders & Borders, the court granted the summary judgment motion of Borders, finding that joint ventures related to Borders satisfied the statutory conditions of the RESPA section 8(c)(4) affiliated business arrangement exemption. The court referred to the exemption as a ‘safe harbor’. The CFPB had alleged that the joint ventures did not qualify for the safe harbor because they were not bona fide providers of settlement services.”
This particular CFPB case goes back to October 2013, the article explained, when the bureau filed a complaint against the company, asserting that the firm violated the RESPA referral fee prohibition through the establishment and operation of the joint ventures.
From the article:
“The CFPB asserted that Borders paid kickbacks to the principals of the real estate and mortgage brokerage companies that were disguised as profit distributions from the joint ventures, and that the kickbacks were for the referral of customers to Borders by the principals.”
However, there was another case going on around the same time that also addressed the issue. Shortly into the Borders’ case, the US Court of Appeals for the Sixth Circuit issued a decision in Carter v. Wells Bowen Realty, Inc.
From the article:
“In the Carter case, private plaintiffs asserted that certain joint ventures did not qualify for the affiliated business arrangement safe harbor based on the bona fide settlement service provider requirement that HUD set forth in the Statement of Policy. The court determined that the defendants satisfied the three statutory conditions of the affiliated business arrangement safe harbor, and based on this determination the court ruled in favor of the defendants.”
Through the Carter case outcome, explained more in-depth here, the court decided in the Borders case that the company satisfied all statutory conditions of the affiliated business arrangement safe harbor. Examples of these conditions include that the joint ventures each had an operating agreement, were authorized to conduct business in Kentucky, were approved by a title insurer to issue title insurance policies, and more.
The ruling closes the door on of the few cases the defendents won against the CFPB. However, the CFPB can still appeal the ruling.
The CFPB has put most of the industry on REPSA violation watch as of late. Between the bureau slapping Prospect Mortgage with a $3.5 million fine for violating RESPA earlier this year and beefing up its ongoing investigation into Zillow for possibly violating RESPA, the real estate agent/lender space is being sent a warning. “Lenders should see this as clear warning that any arrangement with a real estate agent that is used to disguise payments for referrals will be critically reviewed by the CFPB for RESPA violations,” said Daniella Casseres, principal at Offit Kurman.