On August 25, a national mortgage company and a real estate services family of companies (Defendants) together entered into a $17 million settlement to end a putative class action lawsuit accusing them of arranging kickbacks for unlawful referrals of title services in violation of the Real Estate Settlement Procedures Act (RESPA). The complaint, filed in 2015 in the U.S. District Court for the Central District of California, accused Defendants—along with various affiliates—of violating RESPA by allegedly facilitating the exchange of unlawful referral fees and kickbacks through an affiliated business arrangement, while also directing various banks to refer title insurance and other settlement services to a subsidiary in the real estate services family of companies without informing customers of the relationship between the entities. According to a memorandum in support of the motion seeking preliminary approval of the settlement, the real estate services family of companies was “obligated to refer their customers exclusively to [the mortgage company] for mortgage loans, and, in return, [the mortgage company] was required to refer all settlement services back to [the real estate services enterprise’s] subsidiaries.” While a federal judge dismissed the first and second amended complaints “on the basis that Plaintiffs failed to plead sufficient facts for equitable tolling of RESPA’s one-year statute of limitations,” the same judge denied Defendants’ motion to dismiss a third amended complaint because “Defendants’ contention regarding equitable tolling for the statute of limitations was ‘better resolved in either a motion for summary judgment or trial.’” A fourth amended complaint, filed in July 2017, amended certain claims and added additional class plaintiffs, well after settlement discussions had started.
A stipulation of settlement was filed alongside the motion for preliminary approval, in which Defendants continued “to deny each and all of the claims and contentions alleged in the [a]ction . . . [but] have concluded that the further conduct of the [a]ction against them would be protracted and expensive.” Furthermore, the stipulation noted that “substantial amounts of time, energy and resources have been and, unless this [s]ettlement is made, will continue to be devoted to the defense of the claims asserted in the [a]ction.” The proposed settlement class consists of more than 32,000 transactions related to borrowers who closed on mortgage loans originated by the mortgage company between approximately November 2014 through November 2015, and who paid any title, escrow or closing related charges to the real estate services companies. The proposed settlement stipulates that Defendants must pay $17 million into a settlement fund to be used to provide cash payments to class members, as well as a portion that will go towards class counsel attorney fees and litigation expenses pending court approval.