HUD Files Friend of the Court Brief In 4TH Circuit Court of Appeals Pressing Its Position on Mark-ups

February 14, 2002

Following up on the position espoused in its October 2001 Statement of Policy 2001-1 that mark-ups of other providers' settlement charges are violations of RESPA § 8(b), the Department of Housing and Urban Development took the unusual step of submitting a friend-of-the-court brief in early February in Boulware v. Crossland Mortgage Corp., a case pending before the U.S. Court of Appeals for the Fourth Circuit (which covers Maryland, North Carolina, South Carolina, Virginia, and West Virginia). The class action complaint, which alleged that Crossland Mortgage had charged consumers $65 for credit reports that cost only $15, was dismissed by the district court in Maryland. The lower court had dismissed the complaint on the basis of the Seventh Circuit's decision in Echevarria v. Chicago Title & Trust Co., 256 F.3d 623 (2001).

In Echavarria, the Seventh Circuit concluded that RESPA §8(b)'s prohibition on the payment of unearned fees by a settlement service provider did not apply to the situation where a provider marks-up the charge of another provider (i.e., the County Recorder) who is not involved in the mark-up. In the view of the Seventh Circuit and the lower court in Boulware, a defendant in an a RESPA § 8(b) action must pay an unearned fee to, or receive an unearned fee from, a third party other than the consumer; unearned fees received from the consumer are not in violation of § 8(b).

In its Policy Statement 2001-1, HUD made clear its view that, contrary to the Echevarria decision, a "settlement service provider may not levy an additional charge upon a borrower for another settlement service provider's services without providing additional services that are bona fide and justify the increased charge." In its 4th Circuit brief, HUD argues that the language, legislative history and prior HUD interpretations make this conclusion clear and that the court should defer to HUD's long-standing interpretation in this regard. In a supplemental brief in response, Crossland Mortgage argued that the statutory language and legislative history of RESPA §8(b) is contrary to HUD's interpretation, and that Policy Statement 2001-1 is not entitled to judicial deference because it was not issued after notice-and-comment rulemaking.

Oral argument is scheduled in the case for April 4, 2002. Click here to obtain a copy of the HUD brief.

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