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Limiting Federal Claims Against Title Insurers

BY Stewart E. Sterk
October 25, 2011

Title insurance is a regulated business in New York. Title insurers are required to file their rates with the state insurance department, and are required to adhere to those rates. If the insurers fail to adhere to their filed rates, New York state courts have recognized the possibility of class action relief for consumers. See Piscioneri v. Commonwealth Land Title Ins. Co. (In re Coordinated Title Ins. Cases), 2 Misc. 3d 1007A. See also Good v. American Pioneer Title Ins. Co., 12 AD3d 401 (upholding denial of title insurers' motion to dismiss). But suppose overcharged consumers seek more than compensatory damages. Can they seek recovery under federal law ' the Real Estate Settlement Procedures Act (RESPA) ' which provides for both treble damages and attorneys fees? In Lang v. First American Title Insurance Co. (NYLJ 9/16/2011), the federal district court for the Western District of New York dismissed a RESPA claim brought as a class action against one New York title insurer.

RESPA Background

Congress enacted RESPA in 1974. The statute, designed to address both the confusion and cost surrounding real estate closings (see 12 USC section 2601), applies to “federally related mortgage loans,” a category that includes mortgage loans on one- to four-family residential properties whenever the loan is made by a lender whose deposits or accounts are insured or regulated by a federal agency (12 USC section 2602). Many of its provisions are designed to force participants in the settlement process to provide more, and more useful, information to borrowers. Section 8 (12 USC section 2607), entitled “Prohibition against kickbacks and unearned fees” extends beyond disclosure requirements, and explicitly bans a number of practices. Section 8(b), the heart of the statute, provides that “[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.”

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