Title insurers are facing a wave of lawsuits around the nation alleging that they overcharged for title insurance by not charging reissue or other discounted rates in mortgage loan refinancings. On June 18, 2009, Ballard Spahr lawyers won a major victory in one such case, Arthur v. Ticor Title Insurance Company.

The U.S. Court of Appeals for the Fourth Circuit, in a precedential decision, affirmed the lower court's dismissal of the plaintiffs' claims under the Real Estate Settlement Procedures Act and Maryland law.

The class action complaint alleged that the plaintiffs were entitled to Ticor's reissue rate when they refinanced. According to the plaintiffs, Ticor instead charged them its higher, extended coverage rate and shared the fee with its agents who had performed various services in connection with the closing. The plaintiffs claimed that by giving a portion of the allegedly excessive charge to its agents, Ticor had violated Section 8(b) of RESPA, which prohibits giving and accepting a portion of a charge "other than for services actually performed."

The Fourth Circuit rejected the plaintiffs' claim as inconsistent with RESPA's plain language, becoming only the second federal appellate court to rule on whether Section 8(b) can apply to the sharing of allegedly excessive fees by a title insurer with its agents even when the agents have performed services. According to the court, Section 8(b) prohibits fee sharing only with parties who perform no services and is not a "price-control statute" that prohibits charging too much for services actually performed. The Fourth Circuit also rejected the plaintiffs' attempt to circumvent RESPA's language by asking the court to divide the title insurance charge into valid and invalid parts and find that the invalid part was not paid "for services actually performed."

The Fourth Circuit also upheld dismissal of  the plaintiffs' claim under Maryland law "for money had and received," based on the plaintiffs' failure to exhaust their administrative remedies under the Maryland Insurance Code. In affirming the dismissal, the court found that exhaustion was necessary because the claim, which required a showing that money was wrongly obtained, was dependent on the Insurance Code. Similar administrative exhaustion arguments have been asserted by defendants in other pending title insurance overcharge cases; the Fourth Circuit’s ruling represents the first federal appellate court decision on this issue.

The Fourth Circuit also affirmed the lower court's dismissal of the plaintiffs' claim for negligent misrepresentation based on the disclosure in the HUD-1 Settlement Statement of the amount actually charged for title insurance. Because the plaintiffs had admitted this was the amount actually paid (but nonetheless claimed that the HUD-1 should have disclosed the discounted rate that allegedly should have been charged), the Fourth Circuit agreed with the lower court that the plaintiffs had not validly alleged any false statements by Ticor. Negligent misrepresentation is a common claim in these overcharge cases, and this ruling also marks the first federal appellate decision to reject it.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its skill in defending banks and other consumer financial services providers in class actions filed in state and federal courts throughout the country. For further information, please contact Alan S. Kaplinsky, partner-in-charge of the group, 215.864.8544 or kaplinsky@ballardspahr.com.

 


 

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