How to Defend Your RESPA Class-Action Case

Erica L. Calderas, Dennis R. Rose

No one wants to find a class-action lawsuit landing on their desk. They are not only expensive to defend, but a prevailing plaintiff can mean an expensive penalty to pay at the end of the day. At RESPRO’s annual conference earlier this year, Hahn Loeser partners Erica Calderas and Dennis Rose discussed trends in RESPA class actions and viable defense strategies.

Why are there so many RESPA class actions in the first place?

Those covered under RESPA face a particular susceptibility to class actions for a variety of reasons. One of those reasons is the fact that RESPA leads to a more standardized industry practice. This standardization in turn helps parties meet the commonality requirement to form a certified class.

“Also, the transactions themselves follow a pattern,” Rose said. “Everyone’s closing is kind of like everyone else’s closing, because that’s the whole point of it. It has a protocol to it, so Plaintiff A is going to be like Plaintiff B, C, D – all of them are going to have similar closings. We hope that’s the case. We don’t want the process to be such where everyone’s [transaction is] done differently.”

The rules and regulations (and their regulators) also change, which makes compliance difficult. Additionally, the level of competitiveness within the industry often leads participants to push the envelope – and when they push the envelope too far, plaintiffs’ attorneys find issues to litigate. If a settlement is reached, this creates a roadmap for other class actions.

What do certain RESPA class actions teach us?

Class action trials are very rare. However, if one is unable to get a class action dismissed, the litigation process can provide enough work – and litigation costs – to keep a law firm busy for years. On such case is Chultem v. Ticor Title Insurance Co.


“Even the most ordinary, legitimate fees that have been around forever are being questioned and targeted by class action plaintiffs,” Calderas said. “The case has been going on for 10 years. Imagine that, something you do in your everyday business can put you into litigation for 10 years. There are dangers of being in state court on RESPA claims, when really it’s a federal statute, but there’s no way to get it into federal court. The learning curve on RESPA can be huge for a judge or anyone who has never dealt with it.”

This case was actually two class actions (Chultem v. Ticor Title Insurance Co., et al. and Colella v. Chicago Title Insurance Co., et al.) combined for purposes of discovery and trial.

The named plaintiffs, Doljin Chultem and Paul Colella, were homebuyers who were challenging the split of the title insurance premium between the title insurer and their attorney agent who performed the title services. The plaintiffs filed their lawsuit in an Illinois state court under the Illinois Title Insurance Act, a state law that incorporates RESPA.

“This was a routine split of a title insurance premium with an agent,” Calderas said. “But the theory was that the title agent wasn’t really performing services, and that this was a sham arrangement whereby the title company was simply paying for the referral of business, the agent wasn’t doing anything and was getting 70 percent or more of the premium.”

Calderas added that the plaintiffs’ legal theory evolved because the plaintiffs later discovered that there were services provided. They then tried to argue that these were duplicative services, and if the services were duplicative then they didn’t really count as services provided under RESPA. Eventually, the case became a debate about what “services actually performed” meant under RESPA.

“The plaintiffs tried to go beyond the plain language of the statute of ‘services actually performed’ to say that in 1996 when HUD put out a statement of policy for the state of Florida they explained that title insurance agents should do certain four title services,” Calderas said. “Their theory of the case then evolved to title agents have to do all four title services, and if the title insurance company helps in anyway, then the title agent hasn’t earned the fee at all and it’s a kickback.”

The trial court denied class certification twice, finding that the work of each agent could be individualized – a viable defense to class certification. In the state appellate court, however, where the plaintiffs sought an interlocutory appeal, the court of appeals accepted the pleadings as true, without any consideration of the merits of the case and whether they actually could be proved on a class wide bases.

“For anybody who does class actions, that [accepting the pleadings as true standard] is not the standard,” Calderas said. “You are supposed to probe behind the pleadings to look a little bit at the merits: Can this be tried in one fell swoop with common facts and common evidence for the whole class? But in Chultem and Colella the appellate court said it was going to accept the pleadings as true.”

The court of appeals then sent the case back to the trial court with a mandate to certify the classes. At this point, Hahn Loeser took the case and moved for summary judgment, relying in part on Freeman v Quicken Loans.

In Freeman, the U.S. Supreme Court held in 2012 that to establish a violation of 12 U.S.C. § 2607(b), a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons. In other words, unearned fees violate federal law only if the fees are split between two companies. Freeman also recognized that fees for services actually performed do not violate RESPA.

The trial court initially was not receptive to Freeman v. Quicken Loans. The defendants’ motion for summary judgment was denied. During the trial, the trial court found in favor of the title companies:

“When we were making the closing argument, we knew we had a good moment when the court interrupted and said, ‘Doesn’t Freeman v. Quicken Loans help you?’ ” Calderas said.

The state’s First District Court of Appeal affirmed the decision in 2015. In January, the case was argued before the Illinois Supreme Court, which held in May that it could not secure the constitutionally required concurrence of four judges for a decision, therefore, upholding the appellate court’s decision.

Calderas said one major lesson she learned from this case is that when trying a class action, always be mindful of the class certification element. Show the court that there are too many individualized issues to justify class certification, as you may move any time before the judgment for decertification.

In re Comm. Bank of Northern Virginia

“If there is any decision that should keep you up at night, it’s this one,” Diaz said. “I think it’s one of the most important class certification decisions for RESPA that has come down in the past couple years.”

One of the biggest defenses in any RESPA case is the statute of limitations. To bring a private civil lawsuit under RESPA, a plaintiff has one year to find a lawyer and bring a lawsuit.

“Plaintiffs’ attorneys often try to get around that one-year limitation in various creative ways,” Diaz said. “And if they can get around it, then they can take what would be a one-year lawsuit with maybe a couple hundred plaintiffs and make it a five-year lawsuit with thousands of plaintiffs.”

Northern Virginia is a cautionary decision because it involves the equitable tolling legal doctrine. The Third Circuit Court of Appeals held that to establish equitable tolling for RESPA, one merely must participate in a closing process with standardized documents and there must be a false figure on a HUD-1 statement or Closing Disclosure.

“What kind of closing process does not involve standardized documents? And, if there’s a lawsuit about some fee that was involved in a real estate closing, well then there’s a wrong charge on the Closing Disclosure, and so that threatens to open the statute of limitations from one year to almost unlimited,” Diaz added. “We’re going to have to pay attention to this decision in the next few years to see where it goes, but it could be really bad for the real estate industry.”

Fangman v. Genuine Title

This case grew out of an enforcement action by state authorities and the Consumer Financial Protection Bureau (CFPB). The state of Maryland and the CFPB brought separate enforcement actions.

“Anytime that happens that puts the defendant in a really bad spot,” Diaz said. “Because it gives the judge the implied message: ‘The public authority thought there was something here that was wrong, and you settled, so there really must be something wrong.’ It puts you at a disadvantage right away.”

In the Genuine Title case, there were multiple defendants and all except one settled. This creates challenges for the non-settling defendant.

Follow-on lawsuits

“[Follow-on lawsuits occur] when there is an enforcement action by public authorities, and then the plaintiffs’ attorneys in the state or in a nearby area make copycat allegations, and they file a civil lawsuit on behalf of various consumers under RESPA or some similar theory,” Diaz said. “It happened in the Genuine Title case. It also recently happened in the PHH case.”

Diaz noted that although there were no follow-on class actions pending as a result of the Prospect Mortgage consent orders issued by the CFPB earlier this year, the language within the consent orders (within all CFPB consent orders) leaves room for future enforcements.

Such public enforcements create a roadmap for plaintiffs’ attorneys, Rose added.

What defenses can a defendant raise?

“Anytime you are faced with a class action, you inventory all of your defenses and ask yourself, ‘How can I get rid of this as soon as possible?’ If you can bring a motion to dismiss, we recommend bringing it,” Calderas said, adding that turning to the statute of limitations is still a very successful defense, despite the specter of equitable tolling.

Another strong defense is to show that the plaintiff has failed to state a cause of action. Sometimes, plaintiffs plead themselves out of a RESPA cause of action by failing to plead all of the elements of the claim or admitting a defense.

One underused class action defense involves federally related mortgage exemptions.

“If you’re a plaintiff in a RESPA class action, the first thing you have to prove is that RESPA applied to the transaction. In an individual transaction that is kind of easier to do. You’ve got the facts at your fingertips. When you extrapolate that to 200 class members, how are you going to prove that all 200 transactions fall within RESPA?” Calderas said.

Defendants should find examples where the transaction involved is different from the named plaintiff – this can lessen the commonality element of the class. Showing how complicated it is to determine whether a transaction falls under RESPA may convince the judge that it is best to look at each case individually, as opposed to as a class.

“So when you really dig down and understand these exemptions, there can be as many as 20 decision-making points that you have to cross to determine whether RESPA applies,” Calderas added.

Diaz said that when faced with a class-action lawsuit regarding RESPA Section 8’s prohibition of referrals, he raises the fact that class actions are authorized specifically in RESPA Section 6, which deals with mortgage servicing, but are left out of Section 8.

“Congress must have intended that there only be one type of RESPA class action, and that is for mortgage servicing cases,” Diaz said. “The fact that there is not a similar class action provision in RESPA Section 8 must mean that Congress intended for there to be no class actions under RESPA Section 8.”

Although this argument has not been decided upon, it has worked with other statutes, such as the Truth in Lending Act.

Another prong that named plaintiffs must show to achieve class certification is that the class is a superior form for litigation as opposed to having individuals each litigate their own case (e.g. individuals most likely are not going to file a lawsuit to collect $45). For this reason, it is a strong defense to show when individuals would be better off bringing an individual case.

In RESPA’s fee-shifting provisions, for instance, the prevailing party can receive attorney’s fees. Having that option can be an incentive for individuals to bring their own case.

Other defenses include the filed-rate doctrine, enforcing an arbitration clause that’s enforceable against the named plaintiff, or showing how the named plaintiff is an inadequate representative for the party. For instance, a named plaintiff that was the ex-wife of the plaintiffs’ attorney can show that the named plaintiff has a personal incentive to bring a class action if they get part of the attorney’s fees.

No one wants to receive a class-action lawsuit on their desk; however, if you do, those are several underused defenses to consider.