Court holds lenders may not require borrowers to use an affiliated appraisal management company under RESPA; denies class certification
On February 7, a magistrate judge of the U.S. District Court for the Northern District of Georgia recommended denial of a motion for class certification in a case alleging that a mortgage lender, an affiliated appraisal management company (AMC), and the individual owner, through trusts, of both the lender and the AMC committed RESPA violations. The plaintiffs alleged that the individual owner received a thing of value, i.e, profit distributions from the AMC, that were generated from the lender’s referrals to the AMC in violation of Section 8(a) of RESPA, notwithstanding the exemption for affiliated business arrangements, (i) because no disclosure of the affiliation was provided to the borrowers, or (ii) because, even when a disclosure was provided, the borrowers were required to use the AMC.
While reviewing whether the class would have standing, the court disagreed with the defendant’s assertion that the affiliated business arrangement exemption under Section 8(c)(4) of RESPA, which generally bans the required use of an affiliate, but permits a lender to impose its choice of an attorney, credit reporting agency, or real estate appraiser to represent the lender’s interest, should be interpreted to permit the mortgage lender’s required use of an affiliated AMC. The defendants argued that allowing a consumer to shop for an appraisal management company would be inconsistent with TILA and Regulation Z, whose official commentary to Section 1026.37(f)(2) lists “appraisal management company fee” as an example of an item that may be disclosed under “services you cannot shop for” in the Good Faith Estimate. The court rejected that assertion, stating that there are multiple settlement services the lender may require the consumer to use which do not run afoul of RESPA or TILA and that Section 8 is only implicated where there is a kickback involved. The court further examined the plain meaning of Section 8(c)(4) and determined that, from a statutory interpretation perspective, an appraiser and an appraisal management company are not “one and the same.”
Additionally, the court disagreed with the defendants argument that the plaintiffs’ payment to the AMC was covered under the exception in Section 8(c)(2) of RESPA because the payment was not a “thing of value” under Section 8(a). In rejecting the defendants’ argument, the court noted the kickback at issue is the profit ultimately paid to the individual owner, not the plaintiffs’ payment to the AMC, and the defendants did not present any authority that the exception applies when the payment is for ownership interest.
The court ultimately recommended the denial of the class certification because plaintiffs did not demonstrate that ascertaining the class was administratively feasible, including the problem of ascertaining which loans were federally related mortgage loan and which were not. The court also concluded that, given the number of individual inquiries in the case, the requirement that common question of law and fact predominate was not satisfied.