April 23, 2018

Clarity on Brokerages’ Administrative Fees

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Clarity on Brokerages’ Administrative Fees

Freeman, et al v. Quicken Loans Inc. No. 10–1042

NAR General Counsel Laurie Janik comments on the case’s significance to brokers: "Although the defendant was a lender, many brokers charge their own version of an administrative fee on top of the sales commission, and in some previous cases, courts have ruled that the fees violate RESPA. With this case, the Supreme Court has made it clear that the fees don’t constitute a RESPA violation, so long as the fees are not split with a third party who provides no services in exchange for the fee. Brokers still must comply with any state laws, such as unfair or deceptive trade practices laws, that could preclude them from charging an administrative fee. Also, nothing in the ruling changes the RESPA prohibition on real estate practitioners and other settlement service providers accepting anything of value in return for the referral of business."

The U.S. Supreme Court provided clarity about administrative fees charged by brokerages when it ruled in favor of Quicken Loans in a lawsuit alleging a violation of the Real Estate Settlement Procedures Act.

At issue was whether fees the lender charged, known variously as loan processing or loan discount fees, violated RESPA. The plaintiffs said the fees didn't lead to a reduction in their loan costs and weren't tied to specific services so they violated RESPA Sec. 8(b)’s prohibition on unearned fees. Quicken countered that Sec. 8(b) applies only to fees that are split with another settlement service provider. Since the fees weren’t split, they didn’t violate RESPA. NAR, siding with Quicken, filed an amicus brief with the Court.

The Supreme Court agreed with Quicken and NAR, affirming that the RESPA provision very clearly applies only to fees that are split with another provider. "In order to establish a violation of RESPA's fee-splitting language, a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons," the court said in its ruling. “Because petitioners do not contend that respondent split the challenged charges with anyone else, summary judgment was properly granted in favor of respondent. We therefore affirm the judgment of the Court of Appeals."

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