C.D. Cal. Limits Scope Of RESPA Kickback Safe Harbor For "Services Actually Performed"

Mortgage Origination RESPA Escrow

On April 29, the U.S. District Court for the Central District of California held that RESPA’s preclusion of liability for otherwise illegal kickbacks based on “services actually performed” relates only to “settlement services” as defined in RESPA, and not to some broader set of services. Henson v. Fidelity Nat’l Fin. Inc., No. 14-cv-01240, 2014 WL 1682005 (C.D. Cal. Apr. 29, 2014). Last month in the same case, the court held that the overnight delivery services provided by certain delivery companies to a parent company of various escrow companies were “settlement services” under RESPA and concluded that the borrowers had pleaded facts sufficient to establish that the defendant parent company may have violated RESPA by accepting marketing fees from certain delivery companies in exchange for “referring”—via its escrow subsidiaries—overnight delivery business to those delivery companies. The defendant then moved for judgment on the pleadings, asserting that its subsidiary performed actual services in exchange for the marketing fees it received from the delivery companies, and therefore was not liable under RESPA. The court held that although the relevant RESPA section uses only the general term “services” and not the specific phrase “settlement services” used elsewhere in the statue, “Congress would have vitiated RESPA’s purposes by permitting kickbacks as long as the recipient performed any service—even if the service bore no relationship to a real-estate settlement.” The court held that Congress clearly intended to provide a safe harbor only with regard to “settlement services.” In this case, the court held that issues of fact persist as to whether the services performed were settlement services and denied the motion for judgment on the pleadings.