The Eleventh Circuit recently affirmed the dismissal of a putative class action relating to the settlement charges a mortgage service provider is allowed to collect under the Real Estate Settlement Procedures Act (“RESPA”).  In Clements v. LSI Title Agency, Inc., No. 14-11636, the Court held: (1) that a mortgage service provider does not perform only “nominal” services when it procures a closing attorney; and (2) that a mortgage service provider does not violate RESPA by marking up the price of a third-party service.

When Patricia Clements refinanced her mortgage, the bank hired LSI Title Agency to provide refinancing services.  Because Georgia law requires all closing services to be performed by a licensed attorney, LSI contracted with the Law Offices of William E. Fair III, LLC.  The law office arranged for an independent closing attorney to provide the requested services.

Clements later filed a putative class action in state court against LSI, the Law Offices of William E. Fair III, LLC, and Fair, individually.  The defendants removed to federal court, where Clements filed an amended complaint.  Clements alleged two violations of RESPA.  First, she claimed that the defendants and the closing attorney split a $300 settlement fee in violation of RESPA because the defendants provided no actual services related to the closing of the loan.  Second, Clements argued that LSI violated RESPA by charging an $85 markup for “government recording charges.”  The defendants moved to dismiss, arguing that Clements lacked standing, and, in the alternative, that Clements had failed to state a claim upon which relief could be granted.  The trial court agreed, finding that Clements lacked standing because she received a credit for the exact amount of her closing costs, which included the $300 settlement fee and the marked-up recording charges.  The trial court dismissed the amended complaint, and Clements appealed.

The Eleventh Circuit affirmed in part and reversed in part.  At the outset, the Court determined that the trial court erred when it dismissed Clements’s complaint for lack of standing.  Clements alleged that had she not been charged the $300 settlement fee and the $85 government recording markup, she would have received an additional $385 at closing.  The Court found that even though Clements had received a credit for an amount equal to that $385, that fact did not necessarily refute her claim that she would have otherwise received that amount in addition to the credit she received. Accordingly, the Court found that Clements had alleged an actual injury sufficient to give her standing to pursue her claims.

Nevertheless, the Court held that Clements did not state a viable claim under RESPA.  According to RESPA, “[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.”  12 U.S.C. § 2607(b).  The Court held that § 2607(b) required Clements to plead that “no services were rendered in exchange for a settlement fee.”  According to the Eleventh Circuit, each of Clements’s attempts fell short.

First, Clements alleged that the defendants violated RESPA when they split the $300 settlement fee, because they provided only “nominal” services.  According to Clements, the services were nominal because LSI provided services that only licensed attorneys can provide, and Fair and his law office only provided the service of finding a closing attorney to perform closing services.  The Court held that the fact that Georgia law made it illegal for LSI to provide settlement services did not mean that the settlement services it actually provided were nominal, i.e., “existing in name only.”  The Court further held that Fair and his law office earned their portion of the settlement fee because “arranging for a third party contractor to perform a service is itself a service.”  Therefore, LSI, Fair, and his law office “actually performed” “services” for their “portion[s], split[s], or percentage[s]” of the settlement fee.  See 12 U.S.C. § 2607(b).

Second, Clements claimed that LSI violated RESPA by imposing an $85 markup on “government recording charges,” because, Clements argued, a markup of a charge to a consumer violates RESPA when the mortgage service provider “accepts” an unearned portion of that charge.  See 12 U.S.C. § 2607(b).  Joining the majority of courts of appeals to have addressed the issue, the Court decided that markups are not a violation of RESPA.  The Court looked to the U.S. Supreme Court’s recent decision in Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034 (2012), where the Court analyzed the language of § 2607(b) and determined that the terms “give” and “accept” in § 2607(b) refer to the exchange between a service provider and a third party, not the exchange between the consumer and the service provider.  In other words, the Court held, when a service provider marks up a fee, the provider “give[s]” a “portion, split, or percentage” to a third party, and the third party “accept[s]” that “portion, split, or percentage,” and that exchange does not violate RESPA when the third party has “actually performed” a service.  See § 2607(b).   Accordingly, the Court determined that LSI had neither “give[n] . . . [nor] accept[ed] any portion, split, or percentage of any charge . . . other than for services actually performed.”