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Case Law

RESPA kickback, RICO claims leveled at Maryland mortgage servicer

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Case Law
Thursday, September 7, 2023

The U.S. District Court for the District of Maryland considered a plaintiff’s motion for class certification in a case where the mortgage servicer is being accused of violating RESPA’s kickback prohibition and the Racketeer Influenced and Corrupt Organizations Act (RICO).

The claim is based on the servicer assigning residential mortgage loans to a non-party title company in exchange for a referral fee.

The case is Remsnyder, et al., v. MBA Mortgage Svcs., Inc. No. CV CCB-19-492, 2023 WL 5750412 (D. Md. Sept. 6, 2023).

The facts

Matthew Remsnyder and the other plaintiffs in this action are borrowers who had residential mortgage loans originated or brokered by MBA Mortgage Services, Inc. The complaint alleged that between 2009 and 2015, these borrowers closed on a loan for which MBA was the lender and All Star Title, Inc. was the settlement services provider. During that period, MBA allegedly had an agreement with All Star to receive kickbacks in exchange for assigning and referring residential mortgage loans for title and settlement services.

All Star allegedly paid for these referrals by charging MBA borrowers excessive fees for title and settlement services – about double what other title companies were charging for similar services. These fees allegedly were funneled back to MBA by All Star making payments to third-party marketing companies for MBA’s marketing expenses.

The plaintiffs asserted All Star’s attempt to “reinvest” the money from the fees to pay for direct mail solicitations constituted mail fraud and was an effort to “launder” the kickbacks. The complaint stated the kickback agreement affected more than 750 borrowers and all these putative class members were overcharged the same way the named plaintiffs were because the referral fee structure was carried out “in the same way as to every MBA customer who was referred or assigned to All Star.”

The ruling

The proposed class certification is for one overarching class and two subclasses: the MBA class would be defined as: “All individuals in the U.S. who were borrowers on a mortgage loan originated or brokered by MBA Mortgage Services, Inc., for which All Star Title, Inc., provided a settlement service, as identified in Section 1100 on the borrower’s HUD-1 or on the closing disclosure between July 1, 2009, and Dec. 31, 2015. Exempted from this class is any person who, during the period of July 1, 2009, through Dec. 31, 2015, was an employee, officer, member and/or agent of MBA Mortgage Services, Inc. or All Star Title, Inc.; any judicial officer who handles this case, and the immediate family members of such judicial officer(s).”

The two subclasses were titled the RICO and RESPA subclasses:

  • The RICO subclass is comprised of all members of the MBA class.
  • The RESPA subclass is comprised of all members of the MBA class who were borrowers on a federally related mortgage loan as defined under RESPA.

For a class to be certified, the class must meet requirements of numerosity (so many members that individual suits would be impractical), commonality (common questions of law or fact shared by all class members), typicality (the claims or defenses of the named plaintiff would by typical of other class members), adequacy (the named plaintiff much fairly and adequately protect the interests of the class), and ascertainability (members of the class must be reasonably identifiable without undue difficulty). There also is a predominance requirement, which provides the common questions of the class must predominate over any questions affecting individual class members.

“The critical questions in this case will be whether a years-long course of conduct between MBA and All Star involved illegal kickbacks, and whether MBA and All Star defrauded customers to fund the kickback scheme,” the court stated. “The plaintiffs have introduced evidence showing that MBA did in fact agree to refer customers to All Star for settlement services in return for All Star making payments to third party marketing companies on MBA’s behalf.

“The plaintiffs contend that this scheme affected all of the class members’ mortgage loans in the same basic way, and thus proving the illegality of the scheme can be done on a class-wide basis,” it added. “With regard to the primary merits of the plaintiffs’ claims, then, common questions predominate over individual ones.”

MBA argued the payments All Star made to third-party marketing companies were part of a co-marketing agreement, which is protected by RESPA’s safe harbor. It also asserted there was no benefit to MBA for agreeing to purportedly inflated settlement fees under the alleged kickback agreement because for about 60 percent (456 out of the 754 loans at issue), MBA paid all the customer’s closing costs through lender credit. Therefore, these borrowers paid nothing to close their loans. MBA also stated every borrower in the putative class was advised in writing that they could select a settlement agent of their choosing.

Need a refresher on RESPA’s Section 8(c)? Check out The ABCs of RESPA: Getting Back to Basics for explanations from some of the top RESPA experts in the industry.

MBA did not contest that the plaintiffs met their burden under the above test for class certification; instead, it asserted the proposed classes were overly broad and overly populated because several types of putative class members lacked standing. Specifically, those who received lender credits greater than or equal to All Star’s title and settlement charges, those for whom the loan at issue never closed, those who are exempted employees of MBA, those for whom MBA played no role in the selection of the settlement closing agent, and those for whom no HUD-1 has been located.

The court stated MBA’s argument came down to the common questions of the case being overshadowed by the above issues, and if borrowers did not suffer a monetary loss, they lacked standing, and these individual questions of standing would predominate the questions of whether there was an agreement and whether MBA defrauded consumers.

The court did not agree, stating the analysis for predominance focuses on the legal questions and not on whether the number of plaintiffs who may not fit the class definition is exceedingly large. MBA’s argument about a lack of economic loss relied on whether MBA supplied a lender credit, which is an easily checked data point that would be present on borrowers’ HUD-1 forms. The legal question, whether the provision of the lender credit overcame the alleged injury resulting from any overcharge in settlement fees charged by All Star, would not require any additional individualized discovery or factual development. Moreover, the court held the fact some borrowers received lender credits while others did not, did not undermine the predominance of common legal and factual issues.

“The defendant’s argument, though couched as a challenge to various elements of the certification inquiry, is more plainly understood as a full-frontal attack on certain class members’ standing on the merits,” the court stated. “In a class action suit, courts in this district ‘apply the pleading stage burden to analyze...standing’ at the certification stage. To meet that burden, the plaintiffs must provide sufficient ‘plausible allegations, taken as true...to meet Article III standing.’

“Furthermore, in a class action, standing is ‘based on the allegations of personal injury made by the named plaintiffs,’” the court continued. “Accordingly, for class certification at the pleading stage, the named plaintiffs ‘are not obliged to demonstrate that every putative class member has standing.’ MBA does not specifically take issue with the named plaintiffs’ standing. And the named plaintiffs have alleged and provided facts to show that they were overcharged for title and settlement services by All Star. That is enough to demonstrate standing at this stage of the litigation.”

The court applied the same analysis to MBA’s other groups of putative class members and came to a similar conclusion, finding that none of the other issues MBA identified would predominate and the plaintiffs adequately demonstrated that some of the issues identified by MBA “are not, in fact, true.”

“Given the small number of putative class members at issue and the relative ease with which these factual disputes can be resolved, the individualized factual and legal issues associated with these putative class members will not predominate,” the court stated. “To the extent that MBA’s contentions are direct merits challenges to the standing of these putative class members, they are premature.”

Accordingly, the motion for class certification was granted.

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12 USC Section 2605 or Section 6 is titled Servicing of mortgage loans and administration of escrow accounts. It pertains to qualified written requests, notices of transfer of servicing and the administration of escrow accounts.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
An arrangement that involves a person who is in a position to refer business as part of a real estate settlement service and who has an interest in a settlement services provider.

In the arrangement, the person, who has either an affiliate relationship with or a direct or beneficial ownership interest of more than one percent in a settlement services provider, directly or indirectly refers business to that provider or influences a consumer to select that provider.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
A mortgage disclosure that lists all estimated charges and fees associated with your loan. In addition to fees and charges, it will list your loan amount, mortgage rate, loan term and estimated monthly payment. Your escrows due at closing for insurance and taxes will also be outlined. Mortgage lenders are legally required to provide a GFE within three days of receiving your application.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
Under RESPA Section 2605(e)(1)(B), a qualified written request is a written correspondence that includes: 1) the name and account of the borrower, or has enough information to allow the servicer identify that information; and 2) a statement of the reasons for the belief of the borrower that the account is in error or provides sufficient detail to the servicer regarding other information sought by the borrower.

A QWR cannot be written on a payment coupon or other payment medium supplied by the servicer.
12 USC Section 2609 or Section 10 is titled Limitation on requirement of advance deposits in escrow accounts. It governs escrow accounts including notifications and statements to borrowers. Section 10 also sets out penalties for those who violate the section.
RESPA Section 3 provides that a thing of value includes any payment, advance, funds, loan, service or other consideration

Regulation X says thing of value includes: monies, things, discounts, salaries, commissions, fees, duplicate payments of a charge, stock, dividends, distributions of partnership profits, franchise royalties, credits representing monies that may be paid at a future date, the opportunity to participate in a money-making program, retained or increased earnings, increased equity in a parent or subsidiary entity, special bank deposits or accounts, special or unusual banking terms, services of all types at special or free rates, sales or rentals at special prices or rates, lease or rental payments based in whole or in part on the amount of business referred, trips and payment of another person’s expenses or reduction in credit against an existing obligation.
A form used by a settlement or closing agent itemizing all charges imposed on a borrower and seller in a real estate transaction. This form represents the closing transaction and provides each party with a complete list of incoming and outgoing funds. RESPA requires the HUD-1 to be used as the standard real estate settlement form in all transactions in the U.S. involving federally related mortgage loans.
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