New York Federal Court Dismisses RESPA Claim Because Alleged Fees Were Not Split

The United States District Court for the Southern District of New York recently dismissed a complaint filed against a lender alleging that the lender violated the Real Estate Settlement Procedures Act (“RESPA”) by splitting a fee, holding that RESPA only proscribes the splitting of fees “between two or more persons” but does not provide a remedy for unearned fees that are not split.  See Arace v. Quicken Loans, Inc., 2016 WL 390088 (S.D.N.Y. Feb. 1, 2016).  In the putative class action, the plaintiff alleged that she was charged an unearned “tax service fee” that the lender then split with two other settlement service providers.  Although the plaintiff acknowledged that such a fee could be legitimately charged for services such as setting up tax escrow account and ensuring timely tax payments, she argued that the services were not performed because the real property she purchased was part of a cooperative that handles all tax payments itself.  Therefore, she claimed the lender had violated the provision of RESPA prohibiting the giving or accepting of “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.”  See 12 USC 2607(b).  The lender filed a motion to dismiss, arguing that the HUD-1 produced from the closing indicated that this fee was paid directly to the settlement service providers, and therefore it was not “split” between the lender and the providers in violation of RESPA.  The court agreed and dismissed the action.  In support of its holding, it cited the United States Supreme Court decision of Freeman v. Quicken Loans, Inc., which held that these types of claims “were not cognizable under § 2607(b) because the allegedly unearned fees were not split with another party.”  132 S. Ct. 2034 (2012).

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