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