Some Clarity Finally Provided on the Prohibition of Unearned Charges Under RESPA

Section 8(b) of RESPA (Real Estate Settlement Procedures Act) was the subject of an earlier blog post regarding the uncertainty surrounding certain fees charged by title companies and real estate brokerages.  It’s the section that prohibits the giving or acceptance of “any portion, split or percentage of any charge made or received for the rendering of a real estate service in connection with a transaction involving federally related mortgage loan other than for services actually performed.” (12 U.S.C. section 2607(b))

There’s no argument that this provision prohibited fee-splitting in which a 2^nd party receives a portion of the fee charged by a brokerage or title company without having provided any of the services.  However, HUD interpreted this provision more broadly to mean that RESPA outlawed unearned fees, overcharges and mark-ups charged and retained by a brokerage or title company, and which were not split with any other person.  When some brokerages challenged this interpretation in court, some courts agreed and others did not.  The U.S. Supreme Court just issued its decision settling this conflict in Freeman v. Quicken Loans, Inc., No. 10-1042, and HUD’s interpretation lost.

In the Quicken Loans case, the fees being disputed under the broader interpretation of RESPA were certain loan discount fees, loan processing fees and loan origination fees.  The petitioners didn’t allege that Quicken Loans ever split any of these fees with another party.

In a unanimous decision, the Supreme Court held that RESPA Section 8(b) is limited to the ‘splitting of fees paid for settlement services’ and therefore does not prohibit a single provider’s retention of an undivided unearned fee.  This decision rightly limits the scope of Section 8(b) to a straightforward reading of the statute and nothing more.

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