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Tubbs v. North American Title Agency, Inc.

622 F.Supp.2d 207 (D. N.J. 2009)

RESPA; SETTLEMENT FEES — If a lender or other loan service provider retains a third party to perform services and charges a borrower more for those services than it paid its vendor, that would be an impermissible markup and therefore a violation of RESPA, but if it only overcharges for its own services that would not be a violation of RESPA.

Borrowers refinanced their two existing mortgage loans. At closing, a title company acted as settlement agent. It charged a $150 release recording fee which was reflected on the HUD settlement statement. The bank being paid-off charged the borrowers a fee of $40 for each of the two mortgages to record the discharges of the mortgages being satisfied at closing. The borrowers sued the title company. They claimed that the title company violated Section 8(b) of the Real Estate Settlement Practices Act (RESPA) by charging the $150 release fee. Section 8(b) of RESPA prohibits any person from giving or accepting a portion, split or percentage of any charge made or received in connection with a real estate transaction other than for services actually performed. The borrowers argued that the title company improperly marked-up the mortgage discharge fees and that it did not perform any services in connection with the discharge since the bank forwarded the release for recording and charged the borrower for the recording costs. The title company argued that the borrowers had no claim under RESPA because, while the statute prohibits the splitting of a fee for the same service, the $150 release recording fee it charged the borrower was not for the same settlement service provided by the bank.

The Court agreed with the title company, noting that pursuant to RESPA a closing service provider can be liable if it marks up the costs for services provided by someone else and charges more than it pays for that service, but not if it overcharges for a service it provides. For example, if a bank retained a third party to perform certain services and charged a borrower more for those services than it paid its vendor, that would be an impermissible markup. However, if the bank overcharges for services it provided, that would not be a violation of RESPA. In this case, the Court found that the title company did not mark up the bank’s charges because it provided a different settlement service. The paid-off bank did not perform a service. It merely passed on the county clerk’s recording charges for the discharges. The title company however, provided a separate service to the borrowers. It secured payoff letters, collected the funds needed to pay off the mortgages, sent out the payments, and followed up on the discharges. These were separate services for which the title company was permitted to charge pursuant to the New Jersey Land Title Insurance Rating Bureau’s Manual of Rates and Charges. The Court noted that the Manual permits a title company to charge $75 per mortgage for services it provides in connection with a payoff, inclusive of recording costs. So, the title company was entitled to charge the borrowers $150 for the service. However, the title company overcharged the borrowers since the $150 included the $80 in recording costs that were also charged by the bank. The Court found that while the title company did, in fact, overcharge the borrowers for that service, overcharging for services provided is not a violation of RESPA whereas a mark-up for services provided by others and a fee split is a violation of RESPA

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