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A federal appellate court has evaluated whether a transaction fee that a brokerage firm charged violated RESPA. To read an analysis of the opinion from NAR’s General Counsel, click here.
Vicki Busby (“Buyer”) purchased a home using a federally insured loan. JRHBW Realty, Inc. d/b/a RealtySouth (“Brokerage”) represented the Buyer in the transaction. The Brokerage charged the Buyer a $149 “Administrative Brokerage Commission” (“Fee”), in addition to receiving a commission paid by the Seller. The Brokerage charges all of its clients the Fee, regardless of whether the client is a purchaser or seller.
The Buyer filed a lawsuit against the Brokerage alleging that the Fee violated the Real Estate Settlement Procedures Act (“RESPA”), a federal law designed to prevent consumers from paying unnecessarily high settlement costs in a real estate transaction. The Buyer claimed that the Fee violated RESPA because the Brokerage did not provide any services to support the Fee. The Buyer sought to have the lawsuit certified as a class action involving all other individuals, including both buyers and sellers, who paid the Fee in a transaction involving federally insured loans.
The trial court denied the motion for class certification. However, the United States Court of Appeals for the Eleventh Circuit reversed the trial court and sent the case to the lower court for further proceedings. The court stated that an 8(b) lawsuit could occur when no real work is done in exchange for the fee, or the fee exceeds the reasonable value of the services actually provided. On remand, the court certified the lawsuit as a class action and then considered whether the Brokerage had provided settlement services in support of the Fee.
The United States District Court for the Northern District of Alabama ruled that the Brokerage had not identified settlement services to support the Fee and therefore the court ruled in favor of the Buyer and the class she represented. Like the appellate court, the trial court looked at 2001 “Statement of Policy” (“SOP”) issued by the U.S. Department of Housing and Urban Development (“HUD”) on Section 8(b) claims. For Section 8(b) claims, the SOP states that unearned fees are, among other things, when “one settlement service provider charges the consumer a fee where no nominal or duplicative work is done, or the fee is in excess of the reasonable value of goods or facilities provided or the services actually performed.”
The Brokerage argued it charged the Fee to all of its clients in order to help the Brokerage to recover its costs for the array of brokerage services that it provides to its customers. Services identified by the Brokerage that the Fee supported were regulatory compliance costs, providing office facilities, website enhancements, and increased access to information for clients. The Brokerage charged a separate fee to its clients in addition to the commission because the Fee is not split with the Brokerage’s salespeople and so actually reduced the commission costs to consumers. The Fee and the commission represented the costs of doing business with the Brokerage.
The court disagreed with the Brokerage’s characterization of the Fee and found that it was an unearned real estate settlement fee for which no services were provided. The rejected the “array of services” argument because most of the services identified by the Brokerage were not settlement-related. The court also stated that these services did not necessarily benefit clients like the Buyer, and so the court ruled that this argument did not counter the “no services provided” argument made by the Buyer. The court believed that a settlement service for which the Brokerage could collect a fee were those fees related to the closing of a real estate loan, and the services identified by the Brokerage such as an enhanced website did not constitute settlement services.
The court also ruled that many of the identified services were covered by the Brokerage’s commission paid at the closing, and so the Fee constituted a duplication of the commission. Because the Fee was not a RESPA-compensible settlement service charge, the court entered judgment in favor of the Buyer and the class she represented.
Busby v. JRHBW Realty, Inc., No. 2:04-CV-2799-VEH (N.D. Ala. Apr. 20, 2009). [Note: This opinion was not published in an official reporter and therefore should not be cited as authority. Please consult counsel before relying on this opinion.]