There was a reason we liked Maryland.
In arguably the clearest and most concise statement on RESPA class action litigation ever written, U.S. District Court Judge William Nickerson (a George H.W. Bush appointee from 1990) authored a decision in Maryland that not only certified a major RESPA Section 8 class action against an alleged sham AfBA created by Wells Fargo Bank and Long & Foster Realty, but also made a pointed statement to Judge Jack Zouhary (a George W. Bush appointee from 2006) relative to his since-appealed decision in the Carter v. Welles Bowen Realty case pending here in Ohio.
The facts:
Denise Minter obtained a mortgage through Prosperity Mortgage Company in 2006 with the assistance of a Long & Foster realtor. She later sued in 2007 arguing that the affiliated business arrangement created between Wells Fargo and Long & Foster violated RESPA, Sections 8(a), 8(c) and 8(c)(4), RICO and several state law claims. Minter alleged that Prosperity was formed as a joint venture between Wells Fargo Bank and Long & Foster Real Estate Inc. and that it was a front organization formed to circumvent RESPA, rather than as an independent mortgage lender.
Prosperity Mortgage was no small time operation. In fact, it was run by former FHA Director, David Stevens, whose original appointment to FHA was actually held up by his involvement in this litigation. There is no word on whether the ongoing nature of the Minter case — and now the decision to certify a class of potential plaintiffs against the venture — helped precipitate Stevens’ departure from FHA and his convenient exit to the Mortgage Bankers Association.
RESPA Section 8:
Judge Nickerson’s highlight is the full-bodied review he gave to RESPA Section 8 and the legislative history surrounding it.
“While neither the statute nor Regulation X explicitly say so, the statements in [Regulation X] strongly imply that AfBAs not in compliance with the three conditions of Section 8(c)(4) are per se violations.”
”In other words, AfBAs avoid RESPA liability only if they satisfy the requirement of Section 8(c)(4); otherwise, they violate the statute.”
The defendants argued that even if an AfBA is not in compliance with RESPA Section 8(c)(4), they are not in violation of RESPA unless they violate Section 8(a) or (b). Defendants contend that the language in Section 8(c) expressly permitted AfBAs.
Judge Nickerson disagreed.
“Nothing in the statute indicates AfBAs do no violate Sections 8(a) and (b). Rather, Section 8(c) provides merely that ‘nothing in Section 8 shall …prohibit…AfBAs so long as’ the AfBAs satisfy three conditions. If anything, this language indicates AfBAs do violate RESPA’s prohibitions, hence the need for the ‘exemption’.”
Nickerson v. Zouhary
Where the Minter opinion became really interesting is when the Minter Court reviewed the arguments made by the AfBA defendants that Carter v. Welles Bowen — which held that RESPA’s ten-part test was unconstitutionally vague — and determined that Carter was wrongly decided.
“This Court does not share the Carter court’s hesitation and will not follow it. True, it may not be immediately clear to a layperson how much operating capital is ‘sufficient’ for a mortgage lender, but the statute need only be clear enough for a person familiar with the conditions the regulations are meant to address and the objectives the regulations are meant to acheive.”
In other words, the ten part test is not vague and not void.
Judge Nickerson also made it clear that the purpose of RESPA Section 8(c)(4) was not to ensure AfBAs can exist or ensure that rogue courts would not improperly extend RESPA to capture AfBAs where they otherwise should not. Clearly, this was a dig at Judge Zouhary, who in Carter, ruled to the contrary.
Carter is currently on appeal to the U.S. Sixth Circuit Court of Appeals in Cincinnati, Ohio. Minter will likely be appealed by the defendants, as well. Stay tuned.
