NO RESPA VIOLATION FOR CLOSING DISCOUNT

NO RESPA VIOLATION FOR CLOSING DISCOUNT

A federal appellate court has considered whether a developer violated the Real Estate Settlement Procedures Act (“RESPA”) when it offered a buyer a discount on closing costs if the buyer used an affiliate of the developer.

John and Eleanor Yeatman (“Buyers”) agreed to purchase a home from D. R. Horton, Inc. (“Developer”). The Buyers financed their purchase through an affiliate of the Developer, DHI Mortgage Co., Ltd. (“Lender”). The purchase agreement stated that the Developer would pay some of the Buyers closing costs if the Buyers chose the Lender to finance the purchase.

The Buyers filed a lawsuit seeking class action status, claiming that the Developer had violated RESPA. The Developer and the Lender filed a motion to dismiss the lawsuit, arguing that the Buyers were not required to use the Lender to finance the purchase and the purchase agreement only gave the Buyers the option to choose to use the Lender’s services. The trial court agreed, and dismissed the lawsuit. The Buyers appealed.

The United States Court of Appeals for the Eleventh Circuit affirmed the trial court. Congress intended RESPA to provide consumers with improved disclosures of settlement costs and to reduce the costs of closing through the

elimination of referral fees and kickback. The Buyers argued that “tying” the discount to use of the Lender essentially required the Buyers to use the Lender’s services.

The United States Department of Housing and Urban Development (“HUD”) has stated that RESPA is only violated if a purchaser is required to use a service provider; HUD allows the use of discounts by settlement providers to encourage use by consumers of affiliated settlement service providers. The only practice HUD prohibits is the required use of a service provider or if the purchase price is set artificially high so that the offered “discounts” simply lower the price to the actual value.

The court found that the purchase agreement gave the Buyers the option of using the Lender; it did not require that they use the Lender. Therefore, the court affirmed the trial court’s ruling in favor of the Developer and the Lender.

Summary of Yeatman v. D.R. Horton, Inc., 577 F.3d 1329 (11th Cir. 2009), provided by REALTOR.org.


PUTTING THEIR MONEY WHERE THEIR MOUTH IS

The NAR’s Legal Action Committee has recommended providing funding for 11 cases in 2010. One is venued in New Jersey.

Island Realty v. Canton & Broome (NJ) was initiated by a firm seeking to recover a commission allegedly due, and also asserting other claims. The respondent sought to have the Association arbitrate the commission dispute, but the court denied that request because other claims were also asserted in the complaint. That decision is on appeal to the New Jersey Appellate Court. The issue before the court is whether mandatory arbitration may be avoided by a REALTOR® who initiates a lawsuit and pleads or makes other claims in addition to his claim for commission.
-Dan Posternock

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