JUDGMENTS: RESPA - DISCLOSURE

Markups could violate settlement law

U.S. Court of Appeals, Third Circuit, 2005
Santiago v. GMAC Mortgage Group Inc.

The Third Circuit has become the third federal appeals court to hold that a lender could violate the Real Estate Settlement Procedures Act by charging consumers higher fees for a service than it paid a third-party company when the lender provided no additional service.

When Francis Santiago obtained a loan for his home, the lender charged settlement fees that included an $85 tax service fee, a $250 loan servicing fee, and a $20 flood certificate fee. These fees were fully disclosed to the buyer. The borrower later filed a lawsuit, claiming a violation of RESPA because the lender had overcharged for services. For example, said Santiago, the lender had charged him $85 for tax services but paid the company that provided that service only $20. The trial court dismissed the case, but on appeal, the ruling was partially reversed.

The appeals court stated that despite a 2002 policy statement by the U.S. Department of Housing and Urban Development prohibiting both overcharges and markups under RESPA, the RESPA statute didn’t require a court to consider whether a lender’s fees for services it performed were reasonable or too high. Therefore, said the court, the servicing fee the lender charged to fund the loan didn’t violate RESPA.

However, the appellate court disagreed with the trial court concerning the markups of the fees for services provided by a third party. In this case, the court ruled that a markup would violate provisions of RESPA section 8(b), when there are no additional services rendered. If the lender didn’t provide additional services relating to taxes, it violated those provisions of RESPA, the court said.

No duty to disclose assessment

Ohio Court of Appeals, 2004
Maser v. Teague

An Ohio appeals court determined that sellers hadn’t committed fraud by failing to reveal the possibility of a future assessment.

When the Teagues sold their home to the Masers, the contract stated “that the seller hadn’t received any written notice of pending assessments on the property.” However, the sellers had actively sought to get the local government to improve their sewers. The improvements would have been paid for by the home’s owners with a special assessment under Ohio law. Approximately 10 weeks after closing, the Masers were informed that the county sewer district would hold hearings on sewer improvements to their area.

The buyers sued the sellers and the real estate licensees who represented them, alleging fraud and breach of contract because the sellers had known about the possibility of a sewer assessment. The trial court and later the appeals court rejected the argument, stating that the sellers had no need to inform the buyers about the possibility of an assessment, especially since the county agency hadn’t decided on the sewer assessment until after the closing.