Sidekick: Court Finds Title Insurer Violated Anti-Kickback Provisions of RESPA

October 15, 2015

When you make a quid pro quo deal and you are in the real estate business, watch out. You may be violating the Real Estate Settlement Procedures Act (RESPA).

The Ninth Circuit Court of Appeals decided that a title insurer's "equity investments" in title agencies in exchange for agreements that the agencies would refer customers to the insurer violated the anti-kickback provisions of the RESPA, according to an article published on Lexology.

The case, Edwards v. First Am. Corp., 2015 WL 4999329 (9th Cir. Aug. 24, 2015) featured borrowers who filed a putative class-action lawsuit against the title insurer alleging that the company violated Section eight of RESPA. This section prohibits payments for the referral of settlement service business.

Section eight(a) of RESPA aims to eliminate unlawful kickbacks. The statute, specifically 12 U.S.C. Section 2607(a) prohibits any exchange of a thing of value pursuant to real estate referrals. The statute states:

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.

This has been a long-running case since other courts declined to certify the class action. The U.S. Supreme Court eventually granted certiorari, but declined to rule on the merits of the litigation – learn more at SCOTUSblog. The borrowers continued their legal action back in the Ninth Circuit and asked the Court to review the district court's denial of class certification. The Consumer Financial Protection Bureau filed an amicus brief in the appeal as well, according to the Lexology article.

The Ninth Circuit agreed with the Supreme Court and affirmed the denial of the class-action certification. The Court determined that the "prerequisites of class certification are best addressed by the district court, which is in the best position to consider the most fair and efficient procedure for conducting any given litigation." Edwards at 24 (citing Stockwell v. City & Cty. of S.F., 749 F.3d 1107, 1111-12 (9th Cir. 2014)).

Nevertheless, the Court agreed with the plaintiff-consumers that First American was engaged in a "common scheme" to have title agencies refer business to the company. The plaintiff-consumers alleged that First American used standard, written contracts to impose an obligation on title agencies to refer future title insurance business, subject to some limited exceptions. The Court stated that, "if this is true, the title agencies' contractual obligations affected the entire class of home buyers as a result of First American's standard terms." Edwards at 20. The Court concluded that "common issues predominate over individual issues for a sub-class of home buyers referred by the title agencies that were subject to First American's common scheme." Id. at 24.

As you can see, if you do work in the real estate business, including title insurance, you are subject to a litany of complex regulations with serious legal implications. You need an experienced attorney to help guide you through this maze. Kristina Reed is that real estate attorney. Property buyers and sellers, agents/brokers and landlords/tenants all trust in her knowledge, skill, and experience. Contact her today to discuss your legal issues or needs.