Class Action Alleging Improper Charges for Settlement Services Failed to State Claim under Real Estate Settlement Practices Act (RESPA) because Class Action Described an “Overcharge” Rather than a “Markup” or a “Fee Split” and Remaining Class Action State Law Claims Dismissed without Prejudice because Court Refused to Exercise Supplemental Jurisdiction over them New Jersey Federal Court Holds
Plaintiffs filed a putative class action against various North American Title entities alleging inter alia violations of the federal Real Estate Settlement Practices Act (RESPA) and the New Jersey Consumer Fraud Act; specifically, the class action complaint alleged that defendants charged improper fees in connection with the refinancing of residential mortgages. Tubbs v. North Am. Title Agency, Inc., 622 F.Supp.2d 207, 207-08 (D.N.J. 2009). According to the allegations underlying the class action complaint, defendants acted as closing agent when plaintiffs refinanced home loans that they had with Wachovia Bank, id., at 208. Among the closing costs charged by defendants was “release recording fee” of $150, but defendants “did not actually record the release of the mortgages”; instead, “Wachovia prepared and recorded the necessary documents…, and passed through to the borrower the $40 per mortgage recording fee charged by the County.” Id. Defense attorneys moved to dismiss the class action, and plaintiffs filed an amended class action complaint that largely tracked the original. Id., at 208-09. Defense attorneys again moved to dismiss the class action, id., at 209. The district court granted the motion.
The federal court explained that the gravamen of the class action’s RESPA claim was that defendants “violated RESPA by charging a settlement fee for which no services were performed.” Tubbs, at 209. Relying on Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005), plaintiffs argued that defendants’ charge for recording a release was a “markup” prohibited by Section 8(b) of RESPA. Tubbs, at 209. But the district court explained that Santiago drew a distinction between a “markup” and an “overcharge,” which “occurs when the settlement service provider charges the consumer a fee, of which only one portion is a fee for the reasonable value of ‘services rendered.” Id. (citing Santiago, at 387). The distinction is important because under Santiago “the plain language of Section 8(b) does not provide a cause of action for overcharges.” Id., at 210 (citation omitted). Defendants did not actually engage in “fee splitting” because the fee charged by Wachovia “was not for the same settlement service.” Id. The district court explained at page 210 that the $40 fee charged by Wachovia was “not a fee for any service Wachovia was providing” but represented “the actual cost of recording the discharge with the Camden County Clerk’s office” and Wachovia “was passing on the county recording fee for the mortgage satisfaction as permitted by New Jersey Statute.” Further, the $25 fee charged by Wachovia was “for its work in preparing the mortgage satisfaction and arranging for its recording.” Id.
The fee defendants charged plaintiffs “was not a markup of Wachovia’s fees, but rather a charge for its own services.” Tubbs, at 210. New Jersey law permits a closing agency to charge $75 “for each mortgage to be satisfied, inclusive of recording fees,” for the $150 total. Id., at 210-11. Assuming that defendants should not have charged $40 per mortgage for recording fees, given that the $75 charge is “inclusive of recording fees,” this demonstrates only that defendants, at most, overcharged for a service. Id. Because under Santiago an overcharge does not violate Section 8(b) of RESPA, the class action complaint failed to state a claim under RESPA. Id. Accordingly, the district court granted the motion to dismiss the RESPA claim, id. The federal court further then declined to exercise supplemental jurisdiction over the remaining state law claims and so dismissed them without prejudice to be re-filed in state court. Id.