1th Cir Says "Discount Points" Not RESPA "Settlement Service"

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a class action complaint that raised allegations of improper fees under Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C § 2607(b), in connection with charging loan discount payments, or discount points, for a below-market interest rate.


A copy of the opinion is available at:

http://www.ca11.uscourts.gov/opinions/ops/200811245.pdf

Two sets of borrowers brought a class action lawsuit against Quicken Loans, Inc. ("Quicken Loans") claiming to represent everyone who obtained a residential mortgage loan from Quicken and was charged discount points without receiving the below-market interest rate allegedly promised. The borrowers' complaint essentially claimed that Quicken charged the borrowers discount points for a below-market interest rate without providing the below-market interest rate, arguing that this violated RESPA's prohibitions against charging for real estate settlement services other than for services actually performed.

The Eleventh Circuit affirmed the district court's dismissal of the borrower's complaint, holding that discount points such as those charged in this case are not settlement services under RESPA.

It rejected the borrowers' argument that discount points are settlement services because they are included on the HUD-1 Settlement Statement ("HUD-1") of the U.S. Department of Housing and Urban Development ("HUD") under the title “Items Payable in Connection with the Loan' and the HUD-prepared settlement cost information booklet refers to such items as settlement costs.

Instead, the Eleventh Circuit relied on the statutory language of RESPA and the plain and ordinary meaning of the word "service" to hold that discount points paid in the context raised are part of the loan agreement, not a service provided for borrowers. The Eleventh Circuit noted that it was limited in its interpretation of the term "settlement services" to the statutory definition and the regulations interpreting it, and stated that it could not conceive of a circumstance in which charging discount points would qualify under its definition of "service".

Moreover, the Eleventh Circuit found the borrowers' contention that Quicken did not provide them the below-market interest rate they bargained for in connection with the discount points "manifestly implausible." It reached this conclusion based on the notes the borrowers signed after reading the loan documents, including the HUD-1s and their inclusion of a loan discount amount, and the fact that the borrowers made no objection to paying the advance interest called for by the discount points, proceeding to close the loans anyway.

The Eleventh Circuit also affirmed the district court's dismissal of the borrowers" breach of contract claim under state law for the same reasons