RESPA

Marking Up of Third-Party Fees

RESPA § 8(b), 12 U.S.C. § 2607(b), provides:
No 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 in connection with a transaction involving a federally related 
mortgage loan other than for services actually performed.

HUD statement of policy 2001-1 reiterated HUD's position that RESPA prohibits the charging of unearned fees and identified three scenarios where it believes a RESPA violation will exist. The three scenarios giving rise to a RESPA violation are as follows:

• Two or more persons split a fee for settlement services and part or all of one provider’s share of the fee is not in return for goods or facilities actually furnished or services actually performed;

• One settlement service provider marks up the cost of goods or services provided by a third party and keeps the difference without providing actual goods or services to justify the additional charge; and

• One settlement service provider charges a fee for no, nominal or duplicative work, or a fee that exceeds the reasonable value of goods or services provided.

HUD, therefore, has interpreted Section 8(b) to prohibit the marking up of third party vendor fees unless the markup is to compensate for actual goods or services provided and represents the reasonable value of those goods or services.

After the HUD interpretation, there was a split of opinion among the US Circuit Courts as to whether a mark-up without provision of any additional services is a violation of section 8(b).

Two or more parties must split the unearned premium in order to violate Section 8(b)

• Boulware v. Crossland Mortgage Corp 291 F.3d 261 (4th Cir. 2002) (Mortgage lender marked up credit report fee)
• Haug v. Bank of America, N.A. 317 F.3d 832 (8th Cir. 2003) (Markup of Credit Report, appraisal and doc delivery)

A single settlement service provider can violate 8(b)

• Sosa v. Chase Manhattan Mortgage Corp. 348 F3d 979, (11th Cir. 2003)

• Kruse v. Wells Fargo Home Mortgage, Inc. 383 F.3d 49, (2nd Cir. 2004)

• Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3rd Cir. 2005) (Markup of Tax service fee & Flood Cert. Fee, overcharge for Funding fee).

The Supreme Court resolved the split among the circuits in Freeman v. Quicken Loans 132 S.Ct. 2034 (US 2012) holding that "In order to establish a violation of § 2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons." This case involved a "Loan Origination" fee entirely retained by the lender, so there may be room for future argument that there is a "split" between the actual service provider and the party marking up the fee.

In Edwards v. First American, 798 F3d 1172 (9th Cir. 2015), the court quickly rejected the argument that there was only a single party where the alleged split was between First American and its majority owned agency, saying they "are not the same person, but separate legal entities."

Phil Shulman concludes that the "Freeman" case eliminates the possibility that a mark up of a third party fee can be a violation of Section 8(b). He does however caution that the mark-up may still be a violation of other laws, and that "the Consumer Financial Protection Bureau could use its unfair, deceptive, or abusive authority to circumvent the Court’s holding and target settlement service providers with allegedly unfair fees." [[1]]