Co-Author: Jeremy S. Durham
The Buzz about Busby – Busby v. JRHBW Realty, Inc. d/b/a Realty South (Read Part II of this article.)
In January 2008, the 11th Circuit Court’s decision in Busby v. JRHBW Realty, Inc. d/b/a Realty Southgranted class action status to a group of homebuyers who had paid administrative fees to Realty South, a Mortgage Broker. At the closing of Mr. and Mrs. Busby’s residential mortgage loan, Realty South charged a fee of $149, which it called an “administrative brokerage commission,” commonly called an ABC. As a result of the ABC, the Busbys filed suit along with other similarly situated homebuyers under RESPA Section 8(b), arguing that the ABC was an “unearned fee.”
RESPA Section 8(b) prohibits brokers from charging “unearned fees,” establishing that “no person shall give and no person shall receive any portion, split, or percentage of any charge . . . for . . . a real estate settlement service . . . other than for services actually performed.” The Busby Court draws a distinction between two types of arguably unearned fees for which Plaintiffs may want to bring suit under RESPA Section 8(b). The first category encompasses fees for which “no, nominal, or duplicative work is done.” The second category includes fees in an amount that is “in excess of the reasonable value of goods or facilities provided or the services actually performed.” In other words, the first category includes fees charged although the broker has done nothing, while the second category includes fees that are unreasonably high given the work that the broker has actually done (an “Overcharge”). Traditionally, courts have been reluctant to find that Overcharges violate RESPA, refusing to second guess what price is fair for a service provided by a broker.
The Busby court issued class certification to the plaintiffs under the unearned fee provision of RESPA, but only for claims allegedly involving the first category of unearned fees, those for which no actual work was done. The Busby court declined to extend class certification for claims arising from Overcharges because the court determined that Overcharge cases are too fact specific for a class action setting, stating that each individual claim would require the court to make a “reasonableness determination.”
The Busby court’s reluctance to issue class certification for cases arising from Overcharges is a distraction from the real issue here. The real issue here is that the court’s decision carries the underlying implication that it may be willing to hear individual claims arising from either type of unearned fee, including Overcharges. The Busby decision therefore raises doubts about the validity of some administrative brokerage commissions (ABCs) under RESPA, even if the broker has performed some work in exchange for the fee.
For the first time, a court has expressed a potential willingness to utilize RESPA’s unearned fee provision in order to second guess what price is fair for a service provided by a broker. This development poses a substantial risk for brokers who charge ABCs. Brokers should not take this risk lightly, as successful plaintiffs under RESPA may be entitled to both treble damages and attorney fees. Brokerage firms that charge ABCs should work with their RESPA counsel to manage their exposure to Busby like claims.
(Read Part II of this article.)