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Financial Services Law Insights and Observations

4th Circuit: RESPA time-bar annulled by fraudulent concealment

Courts RESPA Kickback Statute of Limitations Appellate Fourth Circuit Class Action Mortgages

Courts

On April 26, the U.S. Court of Appeals for the 4th Circuit reversed a district court’s dismissal of five plaintiffs’ putative class actions alleging RESPA violations, concluding that the claims were not time-barred due to the fraudulent concealment tolling doctrine. According to the opinion, between 2009 and 2014, several banks and mortgage companies (collectively, “defendants”) referred plaintiffs to a title company to procure title insurance and obtain settlement services, which allegedly provided the defendants with “several forms of ‘unearned fees and kickbacks’ to induce those referrals” in violation of RESPA. The plaintiffs alleged the kickbacks came in the form of payments to advertising and marketing shell companies for the referrals, which would then make payments to brokers or loan officers of the defendants. The district court dismissed the class actions because the first of the five class actions was not filed until June 2016, which was well beyond the one-year statute of limitations under RESPA.

On appeal, the plaintiffs argued that they were entitled to relief under RESPA because the kickback scheme was allegedly “fraudulently concealed” by the defendants by using “sham” entities and not reporting the payments on the plaintiffs’ HUD-1 settlement statements. The 4th Circuit agreed, concluding that the district court erred in dismissing the plaintiffs’ claims. The appellate court noted that Congress did not intend to “allow individuals and entities that conceal their unlawful kickback schemes and other RESPA violations to reap the benefit of the statute of limitations as a defense.” Rejecting the defendants’ assertion that publicly-available information, including earlier court filings, should have “‘excited further inquiry’” by the plaintiffs to timely file the action, the appellate court emphasized that the fraudulent concealment doctrine requires only “reasonable diligence” and does not “necessarily hold individual borrowers to the diligence standard of combing court filings in potentially related cases, particularly when the borrower has no reason to be aware of the related cases.”

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