Fourth Circuit Affirms Dismissal Of Class Action Alleging Illegal Mortgage Referrals


On July 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s holding that the fees charged by a mortgage company jointly owned by a national bank and a real estate firm did not violate Maryland’s Finder’s Fee Act. Petry v. Prosperity Mortg. Co., No. 13-1869, 2014 WL 3361828 (4th Cir. Jul. 10, 2014). On behalf of similarly situated borrowers, two borrowers sued the bank, the real estate firm, and the mortgage company, claiming that the mortgage company operated as a broker that helped borrowers obtain mortgage loans from the bank. The borrowers alleged that all the fees that the mortgage company charged at closing were “finder’s fees” within the meaning of the Maryland Finder’s Fee Act, and, as such, the company—aided and abetted by the bank and the real estate firm—violated the Finder’s Fee Act (i) by charging finder’s fees in transactions in which it was both the mortgage broker and the lender and (ii) by charging finder’s fees without a separate written agreement providing for them.

After certifying the class the district court advised the borrowers that the fees did not qualify as finder’s fees under state law unless they had been inflated so that the overcharge could disguise the referral fee. When the borrowers acknowledged they could not prove the fees were inflated, the district court entered judgment for the defendants. On appeal, the court agreed with the district court’s conclusion as to the fees at issue, but held for the defendants on different grounds. The appeals court determined that because the mortgage company was identified as the lender in the documents executed at closing, it was not a “mortgage broker” under Finder’s Fee Act and therefore was not subject to the Act’s provisions. As such, the court further determined it need not decide whether the bank and real estate firm could be liable for the mortgage company’s alleged violations under theories of aiding and abetting.

Written by:

Published In:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BuckleySandler LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »

All the intelligence you need, in one easy email:

Great! Your first step to building an email digest of JD Supra authors and topics. Log in with LinkedIn so we can start sending your digest...

Sign up for your custom alerts now, using LinkedIn ›

* With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name.