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July 21, 1994

JONATHAN A. BLOOM, et al., Plaintiffs,
RAY M. MARTIN, et al., Defendants.

The opinion of the court was delivered by: SAUNDRA BROWN ARMSTRONG

 Plaintiffs filed the instant class action against various mortgage lenders and individuals alleging that they have wrongfully withheld disclosing certain real estate fees. The First Amended Complaint alleges claims under the Real Estate Settlement Procedures Act of 1974 ("RESPA"), 12 U.S.C. §§ 2601-2617, and various state law causes of action. The parties are presently before the Court on defendants' motion to dismiss. *fn1" After having read and considered the papers submitted, and being fully informed, the Court grants defendants' motions. *fn2"


 This purported class action lawsuit *fn3" concerns whether residential mortgage lenders must disclose to borrowers the existence of two statutorily-authorized fees. The first fee at issue is known as a "Demand Fee." The lender charges a Demand Fee for preparing a statement which indicates the borrower's outstanding loan balance in connection with the early payoff of a loan. The second fee is called a "Reconveyance Fee." Lenders impose this fee on borrowers for reconveying the property deed to the borrower when the borrower pays off the mortgage loan balance. Both fees are specifically authorized by California statutes. See Cal. Civ. Code §§ 2941(e)(1) (West Supp. 1994) (Reconveyance Fee) and 2943(e)(6) (West 1993) (Demand Fee).

 The representative plaintiffs in this action are Jonathan A. Bloom, Susan Bloom, Mary Stern ("the Bloom plaintiffs"), and Robert S. Finn. On November 19, 1987, the Bloom plaintiffs secured a loan from defendant Coast Federal Bank F.S.B. ("Coast") to purchase real property. (First Am. Compl. P 27.) On October 28, 1993, the Bloom plaintiffs a tendered payment to Coast of a Demand Fee and a Reconveyance Fee. (Id. at P 28.) *fn4"

 On March 17, 1993, plaintiff Finn obtained a mortgage loan from defendant Countrywide Funding Corporation ("Countrywide") for the purchase of real property. (Id. at P 30.) Finn paid Countrywide a Demand Fee on November 1, 1993. *fn5"

 Plaintiffs' commenced the instant action in this Court on March 7, 1994, and subsequently filed a First Amended Complaint on March 28, 1994. The First Amended Complaint advances six claims for relief. The first and second claims allege that defendants violated RESPA's disclosure requirements, as codified at 12 U.S.C. §§ 2603 and 2607. The crux of plaintiffs' RESPA claims is that the defendant lenders failed to disclose the existence of Demand and Reconveyance Fees on the HUD-1 forms. They claim that such disclosure is required on a federal form prepared by the Department of Housing and Urban Development ("HUD"). This form is known as a "Uniform Settlement Statement" or "HUD-1," and is provided to the borrower at the time the loan is made. Plaintiffs also maintain that the lenders' collection and sharing of such fees was improper. The third, fourth, fifth and sixth claims for relief allege causes of action based on state law. *fn6"

 In their motion to dismiss, defendants argue that RESPA governs only those fees incurred in connection with "settlement services." Settlement services are those services necessary to close the loan (i.e., close escrow). Defendants further maintain that RESPA is not implicated in this lawsuit because Demand and Reconveyance Fees are not incurred at settlement. As such, defendants aver that dismissal of plaintiffs' RESPA claims is warranted. As alternative grounds for dismissal, the defendants contend that RESPA does not provide for a private right of action for disclosure violations. With regard to the alleged fee-splitting violation, defendants assert there are no allegations that defendants have shared or split fees with a third party. Finally, defendants maintain that the Bloom plaintiffs' RESPA claims are time-barred. The Court will discuss each of these issues in turn.


 A. Legal Standard for Motion to Dismiss

 A dismissal under Rule 12(b)(6) is proper where plaintiff "can prove no set of facts which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957). For the purposes of a motion to dismiss under this rule, the allegations in the complaint are taken as true. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). "Dismissal can be based on lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). Thus, the Court may properly grant a Rule 12(b)(6) motion if it is clear from the face of the complaint and judicially-noticed documents that the plaintiffs cannot prevail as a matter of law. See Cervantes v. City of San Diego, 5 F.3d 1273, 1274-75 (9th Cir. 1993).

 B. RESPA Does Not Apply to Demand or Reconveyance Fees

 Congress enacted RESPA to control real estate settlement costs by "insuring that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country." 12 U.S.C. § 2601(a) (1989). To effectuate these objectives, RESPA requires advance disclosure of settlement costs, the elimination of kickbacks or referral fees, and a reduction of the amount that buyers are required to place in escrow accounts for taxes and insurance. Id. §§ 2601(b) (1989).

 Here, plaintiffs allege violations of Sections 4 and 8 of RESPA which set forth the disclosure and anti-kickback provisions, respectively. Each of these sections apply only to settlement services. Section 4 requires that mortgage lenders provide borrowers with a standard disclosure form at or prior to the "settlement." 12 U.S.C. § 2603(b) (1989). This form must "itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement. . . ." Id., § 2603(a) (1989) (emphasis added). Similarly, section 8 prohibits kickbacks which are "incident to or a part of a real estate settlement service . . . ." Id., § 2607(a) (1989). Section 8 also prohibits fee splitting "of any charge made or received for the rendering of a real estate settlement service." 26 U.S.C. § 2607(b) (1989).

 In order to state a claim under RESPA, plaintiffs must establish that the Demand and Reconveyance Fees at issue constitute charges rendered at or in relation to settlement. See Eisenberg v. Comfed Mortgage Co. Inc., 629 F. Supp. 1157, 1159 (D. Mass. 1986) (granting summary judgment for defendant after finding that a mortgage origination fee was not a "settlement service" within the purview of RESPA.) According to HUD, "settlement means the process of executing legally binding documents regarding a lien on property that is subject to a federally related mortgage loan. This process may be called 'closing' or 'escrow' in different jurisdictions." Part 3500--Real Estate Procedures Act, 59 Fed. Reg. 6512 (Feb. 10, 1994) (to be codified at 24 C.F.R. § 3500.2). *fn7" This definition is in accord with the common legal meaning of settlement as it is used in real estate transactions. See Black's Law Dictionary 1372 (6th ed. 1990) (defining "settlement" as "closing; the culmination of a particular transaction involving real property, such as the purchase and sale of real property, the execution of a lease or the making of a mortgage loan").

 Where the fees or charges at issue are imposed after settlement, RESPA is inapplicable. For example, in Greenwald v. First Fed. Sav. & Loan Ass'n, 446 F. Supp. 620, 625 (D. Mass. 1978), aff'd, 591 F.2d 417 (1st Cir. 1979), the district court found that RESPA was inapplicable to the banks' payment of interest on escrow deposits. The court explained that such payments were "obviously" not part of settlement as defined under RESPA because they "can continue long after closing of the mortgage transaction during the entire life of the mortgage, . . ." Id. ; see also Adamson v. Alliance Mortgage Co., 861 F.2d 63, 65-66 (4th Cir. 1988) (finding that under the Truth in Lending Act disclosure requirements, fees charged at the end of the loan need not be disclosed), overruled on other grounds by Busby v. Crown Supply, Inc., 896 F.2d 833 (4th Cir. 1990).

 This view is also supported by two informal opinion letters issued by HUD which state that RESPA does not require disclosure of any post-settlement or post-closure fees. In a letter dated July 15, 1983, HUD characterized settlement services as those "rendered in connection with and in furtherance of the transfer of title, usually paid for at closing, and are often required by the lender." (HUD Informal Opinion Letter, dated July 15, 1983, reprinted in Paul Barron, Federal Regulation of Real Estate and Mortgage Lending App. 2-66 (1992 & Supp. 1993).) Several years later in 1987, HUD reiterated this view, stating that "Section 8(b) of RESPA is directed to practices preceding or accompanying settlement and not post-settlement practices . . . ." HUD Informal Opinion Letter, June 26, 1987, reprinted in Paul Barron, Federal Regulation of Real Estate and Mortgage Lending App. 2-84 (1992 & Supp. 1993).

 There is no dispute between the parties regarding the meaning of "settlement" as it is used in RESPA. (See Pls.' Opp'n at 2.) Thus, the key issue is whether Demand and Reconveyance Fees are incurred in connection with real estate settlement (i.e., the closing of the loan or escrow).

 As a starting point, it is significant that neither Demand nor Reconveyance Fees or any analogous fees appear in the list of "settlement services" defined by RESPA. Section 3 defines such services as:

Any services provided in connection with a real estate settlement including but not limited to the following: title searches, title examinations, the provision of title certificates, title insurance, services rendered by an attorney, the preparation of documents, property surveys, the rendering of credit reports or appraisals, pest and fungus inspections, services rendered by ...

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