White v. PNC Fin. Servs. Grp., No. 11-7928, 2017 U.S. Dist. LEXIS 3240 (E.D. Pa. Jan. 9, 2017).

After five years of joint motions to stay litigation pending the outcome of various cases, a Pennsylvania federal court granted homeowners leave to amend their complaint to include the legal theory of continued violations doctrine as it relates to a captive reinsurance scheme claim under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2607. The homeowners claimed that the involved insurers, lenders and reinsurers colluded to create a scheme that violates RESPA. Specifically, the homeowners claim that the lenders formed subsidiary companies that became the reinsurers and ultimately accepted fees, kickbacks and referrals that violated RESPA. But the court denied the motion to amend to add RICO claims on the grounds of undue delay and prejudice to the lenders, insurers and reinsurers.

In granting the motion on the continuing violation claim, the court explained its rationale. RESPA has a one year statute of limitations period that commenced on the date of the violation. The Third Circuit has held that the date of closing constitutes the date of the violation. The Third Circuit has also stated that the doctrine of continued violations is not dependent on which statute gives rise to the claims. The continued violation doctrine provides that the statute of limitations runs from the date of the last alleged violation rather than the first. The court reasoned that just because RESPA’s statute of limitations begins to run at the date of closing does not eliminate the possibility that subsequent violations of RESPA will trigger the continued violations doctrine, thereby resetting the statute of limitations with each new violation. 

The court agreed with the Consumer Financial Protection Bureau (CFPB) in In the Matter of PHH Corp., No. 2014-CFPB-0002 (CFPB, June 4, 2015), in which the CFPB held that a reinsurer violated RESPA every time it accepted a reinsurance payment and was liable for each violation even though the payments were associated with a loan that was closed prior to that date. In that decision, the CFPB distinguished between a situation where the homeowner pays for the insurance in full at one time and captive reinsurance schemes where insurance payments are made in conjunction with the mortgage payments. 

The court held that RESPA §8 makes it clear that each illegal fee, kickback or referral is its own RESPA violation, thus each violation starts a new one-year state of limitations. According to the court, to hold otherwise would mean that reinsurers could avoid liability for continuing violations occurring one year or later after the closing date.