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Supreme Court Provides Clarity on Brokerages’ Administrative Fees

June 1, 2012

Supreme Court Provides Clarity on Brokerages’ Administrative Fees

On May 30, 2012, in Breaking News, Law & Policy, by Robert Freedman

The U.S. Supreme Court last week provided real estate brokers a lot of clarity about administrative fees charged by brokerages when it ruled in favor of Quicken Loans in a lawsuit over unearned fees in the Real Estate Settlement Procedures Act (RESPA).

At issue was whether fees the lender charged, known variously as a loan processing or a loan discount fee, violated federal settlement laws. The plaintiffs in the lawsuits argued that the fees were unearned because they weren’t tied to a specific service. But Quicken argued that the prohibition, in RESPA, only applied to fees that are split with another settlement service provider. Since it wasn’t split with anyone else, Quicken’s loan processing fee couldn’t constitute a RESPA unearned-fee violation. NAR, siding with Quicken, filed an amicus brief with the Court supporting the lender’s argument.

The Supreme Court agreed with Quicken and NAR, saying the RESPA provision very clearly applies only to fees that are split with another provider, therefore it affirmed the appeals court decision in favor of the lender.

“In order to establish a violation of [of the unearned-fee provision], a plaintiff must demonstrate that a charge for settlement services was divided between two or more persons,” the court said in its ruling. “Because petitioners do not contend that respondent split the challenged charges with anyone else, summary judgment was properly granted in favor of respondent. We therefore affirm the judgment of the Court of Appeals.”

The case is important for real estate brokerages, because although the defendant was a lender, many brokers charge their own version of an administrative fee, on top of the sales commissions, and in some previous cases, courts have ruled that the fees violated RESPA. With this case, therefore, the Supreme Court has made it clear that the fees are okay, so long as the fees are not split with a third party who provides no services in exchange for the fee.

Read an analysis of the case by NAR Legal Affairs.

via Supreme Court Provides Clarity on Brokerages’ Administrative Fees.

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