RESPA Suit Against Lender Moves Ahead

A borrower's class-action lawsuit against a major lender gets the go-ahead to move forward.

February 1, 2010

In Alston v. Countrywide Financial Corp. the U.S. Court of Appeals for the Third Circuit ruled that a lawsuit alleging RESPA violations against a major lender can move forward even though the borrower who filed the suit wasn’t overcharged.

In the case, the borrower obtained a mortgage loan from Countrywide Home Loans, which has since merged with Bank of America. She was also required to get private mortgage insurance, as is customary, because her down payment amounted to less than 20 percent of the home purchase price.

Countrywide referred her to a group of private mortgage insurers, all of whom were required to reinsure their mortgage insurance with Balboa Reinsurance Co., a subsidiary of Countrywide.

The borrower brought a class-action lawsuit against Countrywide, claiming that its captive reinsurance arrangement amounted to a disguised kickback, which would violate the Real Estate Settlement Procedures Act. The federal rules, which were designed to protect consumers from unnecessarily high settlement costs, prohibits any person from giving or receiving a thing of value for the referral of settlement services in connection with a federally related mortgage loan. It also provides that no person shall accept "any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service," other than for services actually performed.

The trial court dismissed the borrower’s lawsuit, reasoning that the mortgage insurance rates were reasonable and couldn’t constitute the kind of unreasonably high settlement charge that RESPA is intended to protect against.

But the borrower successfully appealed the ruling, with the Court of Appeals deciding that an overcharge is not required to bring a RESPA action; a consumer can bring a lawsuit for any charge that allegedly involves a kickback or fee split that violates RESPA. The case was sent back to the lower court to determine if Countrywide violated RESPA.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.