posting for

Friday, August 1, 2003

 

by:  Keith Pearson

kpearson@firstam.com

 

RESPA/UNEARNED FEES/ESCROW AND CLOSING

 

The Seventh Circuit Court of Appeals has held that a bank may not accept a $10.00 split of a $35.60 recording fee unless it performed some service to earn their split in the case of Weiseorick v. ABN Amro Mortgage Group, Inc. No. 02-2801, 7th Circ., 2003.

 

On July 24, 2000, the Weizeoricks sold their house in Chicago, Illinois. The payoff statement included a charge of $10.00 by ABN Amro for a "Recording Discharge/Release of Lien fee." The Weizeoricks paid this fee. They also paid a $25.60 Release Fee" to the closing company who actually performed the recording of the release. The Weizeoricks filed this class action claiming that ABN Amro's practice of collecting $10.00 for "recording" services from borrowers at the closing on the sale of their homes violates RESPA and state law which prohibit the receipt of a portion of a fee paid for real estate services without actually performing the service.

 

Section 8(b) of RESPA provides "No person shall give and no person shall accept 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." This has been interpreted to prohibit kickbacks and unearned fees including splits of fees with third parties that perform no service for their split. Case law has held that Section 8(b) is not violated unless the defendant splits a fee with a third party.

 

Echevarria v. Chicago Title 256 F.3d 623 was cited by defendants. In Echevarria, Chicago Title kept a portion of the recording fees over the actual cost charged by the Cook County recorder. The court in Echevarria held that Section 8(b) did not apply because the title company both collected and retained fees from plaintiffs in the same capacity. The court also noted that if they subjected a settlement service provider to RESPA liability for keeping an overcharge without requiring an allegation that the unearned fee was shared with a third party, they would radically, and wrongly, expand the class of cases to which RESPA applies.

 

The Seventh Circuit in Weizeorick distinguished Echevarria from the present case and analogized to Christakos v. Intercounty Title Co., 196 F.R.D. 496 (N.D. Ill. 2000). In Intercounty, the borrower was charged twice by the settlement agent for recording of the release with one charge going to the title company and another to the bank being paid off. In Christakos, the bank actually recorded the release. In Christakos, the court held that the title company had taken an illegal split under RESPA saying the title company did not merely accept an unearned fee, but instead accepted fees for a single service, and split that fee with a third party who performed the service.

 

The Seventh Circuit then went on to recognize that while they were overruling the trial court's dismissal of the case under Rule 12(b)(6) [failure to state a cause of action], ABN Amro may have earned the fee by producing the release or delivering it. It was also possible that they had charged for those services elsewhere in other fees that were charged.

 

Author's Note: An interesting case that draws a fine line that seems to bless charging over actual cost of performing a service, which is okay (Echevarria), versus charging for a service and then getting someone else to do it for you at a lower price (Christakos).