Expect stronger enforcement of RESPA violations
WASHINGTON – June 16, 2014 – A transfer of duties took enforcement of Real Estate Settlement and Practices Act (RESPA) violations from the Department of Housing and Urban Development (HUD) and gave them to the Consumer Financial Protection Bureau (CFPB). Effective today, the transfer of power is complete.
The result: While laws have not changed, the power transfer has resulted in stricter enforcement and more lawsuits and settlements.
Under HUD, RESPA enforcement was spotty. But CFPB "has taken it to a whole different level," says Gary Lacefield, a former RESPA officer. CFPB has logged 11 RESPA violations – settlements and lawsuits – since 2011.
For example, a large real estate company in Alabama, RealtySouth, paid a $500,000 penalty earlier this year, though the firm settled without admitting guilt. Under CFPB's allegations, RealtySouth directed buyers to its own title company, TitleSouth, in the contract. The contract also included the required disclosures, but CFPB claimed they were buried.
According to Marx David Sterbcow, a New Orleans lawyer specializing in RESPA, CFPB doesn't "care how big your company is – nor do they care how small your company is."
In another case announced by CFPB late last week, a New Jersey company, Stonebridge Title Services Inc., announced it would pay $30,000 for illegal referral kickbacks.
The Bureau alleges that Stonebridge paid commissions as high as 40 percent to more than 20 independent salespeople. Referral commissions are allowed under RESPA if the recipient is an employee of the company paying the referral; but in this case – even though the individuals received W-2 tax forms as employees – the CFPB determined that they were independent contractors and not bona fide employees.
Responsibility for administration of RESPA statutes, including authority to issue regulations, was transferred to the Consumer Financial Protection Bureau (CFPB) pursuant to title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). While the power transfer was done over time, it's fully effective today.
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