District Court rejects the array of services defense to a RESPA § 8(b) claim that no settlement services were provided

The US District Court for the Northern District of Alabama has followed the approach of its sister court in the Southern District of New York in rejecting the array of services defense to a Section 8 RESPA claim. In Busby v. JRHBW Realty, Inc., 2:04-CV-2799-VEH (N.D.Ala., Apr. 2009) the borrower sued the loan broker over a fee it describes as an ABC fee at closing. This fee simply reflects the increase in the price or fee that [defendant] charges for all its brokerage services rendered to most buyers and sellers and is not intended to cover a specific service (for example, a flat fee for record storage or for attendance at the closing). It therefore includes overhead. In her class action complaint, the borrower contended that this fee represent an unearned fee under Section 8(b) of RESPA. The court granted her summary judgment (and class certification). Based upon an extension of the reasoning employed in _Cohen v. J.P. Morgan Chase & Co._, No. CV-04-4098 (CPS), 2009 WL 212159 (E.D.N.Y. Jan. 28, 2009), the court concluded as a matter of law that the array of services defense was not a valid defense to a § 8(b) no services claim because the services were not settlement-related and/or provided little or no benefit to the borrower. It adopted that court’s working definition of what constitutes a ‘settlement service’ as that which either directly benefits the consumer, or is performed at or before the closing. This accounts for actions taken by the lender before closing that for the most part benefit the lender, such as underwriting, credit reports, and appraisals, for which RESPA clearly permits fees to be charged. It also accounts for actions performed after closing that are deemed compensable by HUD, such as in the case of prepaid insurance premiums, which are clearly beneficial to the borrowers who pay for them. According to the court, this formulation ensures that the services performed and paid for by individual borrowers are all tied to the creation of an individual loan.

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