Legal Update


  • June 4th, 2012
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The Supreme Court of the United States held that a lender who charges consumers an unearned fee does NOT violate RESPA §2607(b), unless the fee was given and accepted between two or more persons.  It does not bar unearned fees charged by a single service provider.  Freeman v. Quicken Loans, 566 U.S.(2012)

FACTS:  The Real Estate Settlement Procedures Act (RESPA) regulates settlement services provided by title companies, escrow agents, real estate agents, mortgage brokers, appraisers, termite inspectors and others, in all real estate transactions involving federally related mortgage loans.   RESPA applies to the great majority of residential property sales and related loan transactions.

RESPA §2607(b) prohibits the charging of fees where no services are performed for those fees.  These illegal fees are sometimes referred to as “junk fees” or “unearned fees”.  Section 2607(b) states in pertinent part:

“[n]o 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 . . . other than for services actually performed.”

RESPA also prohibits either giving or receiving any consideration or thing of value in exchange for the referral of business for a federally related mortgage transaction.  A referral under RESPA includes any oral or written action which has the effect of affirmatively influencing the selection by any person of a provider of a settlement service. [24 C.F.R. § 3500.14(f)(1)].

Plaintiffs in this case are borrowers who obtained mortgage loans from Quicken Loans and were charged processing fees and origination fees in excess of $5,000 to obtain their loans.  Plaintiffs sued alleging that these were “unearned fees” in violation of RESPA because no services were performed by the lender in exchange for these fees.  Plaintiffs allege that this was a disguised loan discount fee, but Quicken did not give them lower interest rates in return, so the fees were unearned.

Quicken moved for summary judgment dismissing Plaintiffs’ claims on the ground that they did not violate §2607(b) because the allegedly unearned fees were not split with another party.  Quicken argued that the prohibition against unearned fees applies only where those fees are split between two or more persons.

The District Court agreed and a divided panel of the United States Court of Appeals for the Fifth Circuit affirmed [626 F. 3d 799 (2010)].   The United States Supreme Court granted review.

DECISION:  The Supreme Court of the United States affirmed and dismissed the case.   The court noted that RESPA §2607(b) furthers Congress’s stated goal of eliminating kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services.  Damages for violation of this provision are set at three times the charge paid by the consumer.

The court did not decide whether the processing and origination fees were unearned.  Instead the court analyzed whether RESPA prohibits the collection of an unearned charge by a single service provider or whether it covers only transactions in which a provider shares a part of a settlement service charge with one or more other person who did nothing to earn that part.

In 2001 (more than 11 years ago), the Department of Housing and Urban Development (HUD) issued a policy statement interpreting §2607(b) to prohibit any person from giving or accepting unearned fees and stating that it was not limited to situations where at least two or more persons split the fee.

The Supreme Court found that HUD’s interpretation was not supported by the express language of the statute.   The Court said that RESPA does not bar unreasonably high fees.

The Supreme Court focused on the language of the statute that states “no person shall give and no person shall accept…”.  This phrase requires a two-step transaction where one provider gives and another provider receives the fee.  The Court held that §2607(b) unambiguously covers only a settlement service provider’s splitting of a fee with one or more other persons.  It cannot be understood to reach a single provider’s retention of an unearned fee.

ANALYSIS:   In this decision, the Supreme Court has eliminated the long-held belief that RESPA prohibits junk fees or unearned fees charged by a settlement service provider.  Now, unearned fees do not violate RESPA unless they are shared.

Full text of the decision:


This case was recently decided and is subject to change by further court review.  You should consult legal counsel to evaluate this legal precedent in the context of your specific facts.  The distribution of Legal Update does not by itself create an attorney-client relationship with the reader.