Freeman, et. al. v Quicken Loans, Inc. (US S Ct)

Summary:  The Real Estate Settlement Procedures Act (RESPA) Section 2607 seeks to prohibit kickbacks and unearned fees, but the statute will not provide a remedy where a single settlement provider retains, in its entirety, an unearned fee for services not rendered.

Freeman, et. al. v Quicken Loans, Inc., 132 S. Ct. 2034 (U.S. 2012).

Facts:  The petitioners in this case were three married couples (Freeman) who obtained mortgage loans from Quicken Loans, Inc. Separately, each couple filed an action in Louisiana alleging that Quicken violated Section 2607(b) of the Real Estate Settlement Procedures Act (RESPA) when Quicken charged fees for which no service was provided. RESPA’s Section 2607 (b) provides the following:

“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.”

Two petitioners were charged loan discount fees of $980 and $1,100 respectively, but never received lower interest rates in return. The third petitioner alleged a $575 loan “processing fee” and “loan origination” fee exceeding $5,100. The issue before the court was whether an undivided, unearned fee retained by a settlement service provider is prohibited by the act.

Quicken moved to consolidate the cases in federal court where the district court granted a summary judgment in favor of Quicken on grounds that Freeman’s claims were not cognizable under Section 2607(b) because the unearned fees were not split with another party. The U.S. Court of Appeals for the 5th Circuit was divided on the issue and a writ of certiorari was granted.

Holding:  Affirmed. The U.S. Supreme Court held that Quicken, as the sole settlement provider, did not violate RESPA Section 2607(b). The Supreme Court interpreted the statute to cover only a settlement-service provider’s splitting of a fee with one or more other persons and stated that it cannot be understood to reach a single provider’s retention of an unearned fee. The court disagreed with Freeman’s allegation that Quicken “accepted” a “portion, split, or percentage” of a settlement, service charge “other than for services actually performed.”

The Court held that the statute unambiguously requires two distinct exchanges: First, a “charge” is “made” to or “received” from a consumer by a settlement-service provider. Second, that provider “gives,” and another person “accepts,” a “portion, split, or percentage” of the charge. These two distinct steps are not to be merged, as the purpose of the statute is to prohibit kickbacks given to one or more parties who did nothing to earn that part.

The Freeman interpretation would require that the Court find the statute is violated only if Freeman is interpreted to be the giving party, and Quicken the receiving party. Considering that the language of the statute prohibits the conduct of the giving party as well, this would make Freeman also a violator of Section 2607(b). The Court refused to give Section 2607(b) a meaning that makes lawbreakers out of consumers – the very class this statute was enacted to benefit and protect.

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By: ATG Underwriting Department | Posted on: Wed, 06/20/2012 - 4:06pm