The U.S. Supreme Court disappointed the mortgage finance and settlement services industries by refusing to deliver an opinion in a well-known Real Estate Settlement Procedures Act case, known as First American v. Edwards.
Because the Supreme Court refused the case, a Ninth Circuit Court opinion that says a party does not have to show actual injury or financial harm to sue for violations under RESPA will remain standing.
First American appealed to the Supreme Court, arguing a plaintiff should have to show that the alleged RESPA violation actually caused her harm. However, with the court punting on this case, the Ninth Circuit decision becomes precedent in its jurisdiction, and other jurisdictions are left without the Supreme Court to guide their decisions.
“It is an unusual step for the court to do what is the equivalent of denying certiorari after they have already heard oral arguments,” said Phillip Schulman, an attorney with K&L Gates. “Here, they took the case, were briefed by both sides, they heard oral arguments and then decided not to issue an opinion.”
The justices’ refusal to take the case means in the Ninth Circuit — and other circuits that decide to adopt the same opinion — “a plaintiff that can show there has been a violation of RESPA will be able to establish sufficient injury to be able to bring suit.” in other words, the plaintiff does not have to prove financial harm. She or he only has to show a violation of the act occurred.
In a news brief released by his firm, Schulman added, “RESPA leaves the settlement service industry at the mercy of the lower courts and effectively invites private plaintiffs to sue settlement service providers under RESPA whenever a statutory violation is suspected regardless of whether any harm has resulted.”
The case involves plaintiff, Denise Edwards, who claims her settlement agent Tower City Title Agency referred her to First American Title to acquire title insurance. She argued that Section 8(a) of RESPA prevents agencies from accepting kickbacks and referral fees among parties that offer services in mortgage transactions. Equating the Tower City-First American relationship to a kick-back scheme, Edwards sued First American under RESPA.
First American argued that price rates are set by the state and Edwards’ payment rate was in line with state regulations and not impacted by the relationship between the two firms.
Because of this, the legal question became whether a person has to suffer actual harm to bring a RESPA case into court. The Ninth Circuit said harm is not required as long as the party alleges a violation of RESPA.
Without a U.S. Supreme Court decision, the Ninth Circuit’s holding sticks for now.