Fourth Circuit Unanimously Rejects HUD Position That RESPA § 8(b)

May 23, 2002

Applies To Mark-Ups And Other Overcharges

In a resounding rejection of HUD?s view that RESPA § 8(b) broadly applies to mark-ups and other overcharges for settlement services, a three-judge panel of the U.S. Court of Appeals for the Fourth Circuit unanimously concluded in Boulware v. Crossland Mortgage Corp.[pdf} that "{t}he plain language of § 8(b) makes clear that it does not apply to every overcharge for a real estate settlement service and that § 8(b) is not a broad price-control provision." Click here [pdf} for a copy of the May 22, 2002 opinion.

In an opinion written by Chief Judge J. Harvie Wilkinson III, the court, affirming a lower court judgment and agreeing with the recent opinion of the Seventh Circuit in Echevarria v. Chicago Title & Trust Co., concluded that the plain language of § 8(b) makes clear that the provision applies only when a settlement service provider pays a portion, split or percentage of its fee to another party that does not render services to justify the payment. Accordingly, the court found that there was no violation of § 8(b) where a lender charges the consumer more for a credit report than the lender paid for that credit report because the lender had not paid any portion, split or percentage of its fee to a third party "other than for services rendered."

The Department of Housing and Urban Development had filed a friend-of-the court brief urging the court to reject the Seventh Circuit?s reasoning in Echevarria and to defer to HUD?s interpretation of RESPA 8(b) as expressed in HUD?s Policy Statement 2001-1. Click here for a copy of the HUD brief. The panel concluded, however, that it did not owe any deference to HUD?s interpretation that RESPA § 8(b) applied to any charge, including mark-ups, where any portion of the charge was not justified by services rendered, because that interpretation was inconsistent with the plain language of § 8(b).

Echoing arguments that were made in the "White Paper" on RESPA § 8(b) submitted earlier this year to HUD by ALTA and a coalition of other settlement service trade associations (click here [pdf] for a copy of the White Paper), the court found that the plaintiff and HUD were

in effect asking us to subject all settlement services, including, inter alia, title searches, title examinations, title insurance, attorneys? services, property surveys, credit reports, pest inspections, real estate agents? and brokers? services, and loan processing to broad price regulation. In fact, under [their] interpretation of the statute, HUD or the federal courts could determine what settlement service fees are reasonable in the first instance, without an allegation that the fees were even marked up. . . . If we were to read § 8(b) in the way Boulware suggests, every settlement fee would be the subject of potential litigation and discovery, leading perhaps to increased costs for real estate settlement services in the long run.

Noting that, in enacting RESPA, "Congress chose to leave markups and the price of real estate settlement services to the free market by ?considering and explicitly reject[ing] a system of price control for fees?", the court concluded that "if we subject a settlement service provider to RESPA liability for keeping an overcharge without requiring an allegation that the unearned fee was shared with a third party, ?we would radically, and wrongly, expand the class of cases to which RESPA § 8(b) applies?" (quoting Echevarria).

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North American Title Insurance Company (NATIC) is a seasoned title insurance underwriter, helping title agents to achieve their individual business goals for more than 50 years. Today, the company conducts real estate settlement services in 39 states and the District of Columbia through a network of experienced, independent agents.