To Defer or Not to Defer: RESPA, HUD, and the Section 8(B) Circuit Split

Abstract

As the United States’ economy struggles in the wake of the recent residential real estate market implosion, scholars, commentators, and average citizens alike continue to debate the relative blameworthiness of uninformed consumers, overzealous lenders, and lackluster federal regulation as contributing causal factors. In light of the backlash in the national media against predatory lending practices, it might be surprising to some that there is still only one federal remedial statute that specifically regulates residential real estate settlements - the Real Estate Settlement Procedures Act of 1974. Perhaps even more surprising is that this Act, tailored to prevent abuses in the settlement process, contains blatant ambiguities that make it difficult in many cases to ascertain whether a service provider has violated its terms.

This Note analyzes those ambiguities and the resulting split of authority among the federal courts of appeals. The principle question explored in this Note is whether section 8(b) of the Real Estate Settlement Procedures Act of 1974 prohibits a single service provider from charging a purely unearned fee in connection with a federally related mortgage. There are several critical ancillary issues that must also be addressed in the search for a resolution that is faithful both to the language and intent of the statute as well as the analytical methodology mandated by the Supreme Court of the United States. Such issues include the degree of deference to accord the U.S. Department of Housing and Urban Development’s (HUD) interpretations of the statute and whether the Act prohibits overcharging for services in the settlement process. To this end, the author identifies three types of unearned fees that could potentially be prohibited by the Act: purely unearned fees, markup fees, and overcharge fees.

After a detailed and critical analysis of the positions advanced by HUD and the courts of appeals, the author concludes that because the text of the statute is ambiguous and because neither the structure of the statute, its stated purposes, nor its legislative history are dispositive of the issue, courts should follow the guidance of Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. and accord complete deference to HUD’s interpretation, which advocates that a single service provider charging purely unearned fees violates the Act. The author urges, however, that overcharge fees, while arguably within the purview of the statute according to a plausible plain-language interpretation, are not proscribed by the Act based upon the clear legislative intent to avoid becoming price control regulation. Finally, the author concludes that whether markup fees violate section 8(b)’s prohibitions must be analyzed on a case-by-case basis, the standard being whether the markup fee was charged for services that were actually rendered.

Keywords: RESPA, HUD, Chevron deference