The U.S. District Court for the Western District of Kentucky recently dismissed a CFPB lawsuit against a real estate closing law firm brought under anti-kickback provisions of RESPA, finding that the law firm qualified for a safe harbor provision that exempts certain affiliated business arrangements from liability under the Act.
The law firm was frequently hired by lenders to prepare real estate conveyance and mortgage documents, and to conduct real estate closings. In 2006, the law firm established joint ventures with several real estate title insurance companies, and began referring borrowers to these affiliated title companies when closing mortgage transactions. In each instance, the relationship between the law firm and the referred affiliate title company was disclosed to borrowers and buyers at closing, who were also informed that they were not obligated to purchase title insurance from the affiliate title company.
The CFPB filed suit against the law firm in October 2013, alleging violations of Section 8(a) of RESPA, which prohibits the giving of any “thing of value” in exchange for referrals in connection with the provision of a real estate settlement service involving a federally-related mortgage loan. Upon learning that it was being investigated for potential violations of RESPA’s anti-kickback provision, the law firm ceased the referral practices and dissolved the affiliated title companies.
Finding that the CFPB had adequately shown the elements of RESPA Section 8(a)—the payment of a thing of value, made pursuant to an agreement to refer settlement business, and an actual referral—the Court considered whether the law firm had satisfied the elements of RESPA’s safe harbor provision for affiliated business arrangements. This safe harbor, under RESPA Section 8(c)(4), applies where (1) the subject business arrangement has been disclosed to the consumer, (2) the consumer is not required to use the referred settlement service provider, and (3) the only thing of value exchanged pursuant to the arrangement is “a return on the ownership interest or franchise relationship.”
The Court found that the safe harbor did apply. First, the law firm had given customers timely and accurate disclosures of the affiliated business arrangement by disclosing at the time of closing that the law firm held a relationship with the title insurance agency and would receive a commission. Second, customers were adequately informed that they were not required to use the recommended title insurance company, and that other title insurance agencies were available in the marketplace. Third, the only “thing of value” exchanged between the law firm and its affiliated title insurance companies was income distributions calculated from the respective ownership interests of the members.
Finding that there was no genuine dispute of material fact that the law firm and affiliate title insurance companies qualified as an affiliated business relationship under Section 8(c)(4)’s safe harbor provision, the Court granted the law firm’s motion for summary judgment and dismissed the suit.
The case is CFPB v. Borders & Borders, et al., No. 3:13-CV-01047.