Abell's Kentucky Law Blog

FDA Warns of Fraudulent Swine Flu Cures

The Food and Drug Administration (FDA) has issued a warning about Internet marketing of fraudulent swine flu cures. Learn more about the warning here. 

Robert L. Abell
www.RobertAbellLaw.com

Real Estate Closing Kickback Scheme Violates RESPA

Homebuyers' rights under the Real Estate Settlement Procedures Act (RESPA) prohibit any type of kickback or fee-splitting arising from settlement services regardless of whether the homebuyers were overcharged the United States Court of Appeals for the Sixth Circuit recently ruled in Carter v Welles-Bowen Realty, Inc, No 07-3965 (6th Cir, January 23, 2009). In the event of a violation, the homebuyer may recover "an amount equal to three times the amount of any charge paid for such settlement service."

The Carters bought a home and were represented by Welles-Bowen Realty, Inc. (WB Realty), which was co-owned by WB Investors and Chicago Title. WB Realty referred the Carters to WB Title to handle their closing. WB Title charged the Carters $946.28 to title insurance, which included $696.28 for an owner's policy, $75.00 for a title commitment or binder, $100.00 for survey coverage and $75.00 for an environmental protection lien endorsement.  

The Carters filed suit claiming that the arrangement violated RESPA, whose section 8 prohibits the following:

(a) Business referrals

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

(b) Splitting charges

No person shall give and no person shall accept any portion, split or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

The Carters alleged that WB Title was a sham title company which performed no actual settlement work but, nonetheless, received unearned monies from Chicago Title, which actually did the real settlement work. Chicago Title, the Carters further alleged, provided illegal kickbacks or splits in the form of their share of WB Title's profits, which Chicago Title would be paid for its work through its share of the ownership of WB Title. However, the Carters did not claim that they were overcharged.

Whether the Carters were overcharged was irrelevant, the court ruled because a violation of RESPA's anti-kickback prohibitions made "a defendant liable for the charges assessed the home buyer for settlement services as a whole, and not just for overcharges."

Robert L. Abell

www.RobertAbellLaw.com

Enforce Discrimination and Consumer Protection Laws Toward Solving the Mortgage Mess

Predatory lending in violation of federal discrimination and consumer protection laws is a large component of the mortgage mess that has brought our national economy to a standstill.  Enforcement of of federal discrimination and consumer protection laws is one means to force the predatory loan sharks to pay their share of remedying the mess suggests law professor Ray Brescia in an interesting article, Eat the Loan Sharks?, on Slate.  He reports that Federal Reserve data from 2006 shows that, among borrowers of similar income, 30 % of African-Americans received subprime loans, 26 % of Latinos did compared with only 18% of white borrowers, facts that suggest discriminatory lending practices in violation of federal law.  Professor Brescia explains further:

This discrimination is at the core of a number of lawsuits advocates have filed across the country over the last year. Several of the cases focus on a particularly devious practice: Without borrower knowledge, many mortgage brokers received a commission from the lender for persuading a borrower to accept a higher loan interest rate than what the bank was otherwise willing to offer. The lawsuits claim that such commissions were paid more often in loans to African-Americans and Latinos than in loans to whites, revealing, again, that lenders often charged borrowers of color more than their white counterparts. As these suits progress, and the groups suing gain access to lenders' and brokers' records—e-mails, internal memoranda, training materials, and other documents—we are likely to learn more about the practices of the lenders who are the defendants and about the industry in general.

Professor Brescia also notes that consumer protection laws in many states also prohibit the common practice of mortgage brokers increasing their own commissions by steering borrowers into more expensive mortgages.  

Robert L. Abell

www.RobertAbellLaw.com

American Association for Justice Reports On Insurance Companies' "Tricks of the Trade"

The American Association for Justice (AAJ) has continued its examination of the insurance industry.  In July, AAJ released a report The Ten Worst Insurance Companies in America: How They Raise Premiums, Deny Claims, and Refuse Insurance to Those Who Need It Most.  Now, AAJ reports on the insurance industry's stonewalling, subterfuge and other unethical and bad faith practices: Tricks of the Trade: How Insurance Companies Deny, Delay, Confuse and Refuse. 

The favorite tricks include the following: denying claims, delaying until death, confusing consumers, discriminating by credit score, abandoning the sick and cancelling for a call.

Robert L. Abell
www.RobertAbellLaw.com

Fairness of Consumer Arbitration Procedures Questioned

    Business Week reports in "Banks vs. Consumers (Guess Who Wins)" that National Arbitration Forum (NAF), one of the country's largest for-profit arbitration companies courts corporations against consumers by claiming that it will enable credit card companies to markedly increase their recovery rates over their existing collection methods.  Business Week also reports that NAF marketing materials brag that creditors may use NAF procedural maneuvers to tilt the process in their favor.  A Harvard Law School professor testified under oath that she found NAF processes so unfair and biased that she resigned as an NAF arbitrator, Business Week also reports.  Arbitration provisions are contained in many consumer agreements and many consumers unknowingly and unwittingly agree to submit a dispute to be decided by an arbitrator.  There are strong incentives for arbitration companies to favor the corporations that are their best customers.  Ask yourself: what if a judge solicited cases from big corporations by offering them a business-friendly venue to resolve their disputes with consumers and individuals?  Would that be fair? 

Robert L. Abell
www.RobertAbellLaw.com