Sixth Circuit Rejects HUD Test For RESPA Affiliated Business Safe Harbor


On November 27, the U.S. Court of Appeals for the Sixth Circuit held that HUD’s supplemental ten factor test for determining whether RESPA’s affiliated business arrangements safe harbor applies is not entitled to deference or persuasive weight, and determined that a real estate agency and its affiliated title servicers companies satisfied RESPA’s statutory affiliated business arrangements safe harbor provision. Carter v. Welles-Bowen Realty, Inc., No. 10-3922, 2013 WL 6183851 (6th Cir. Nov. 27, 2013). On behalf of a putative class, a group of homebuyers who used a real estate agency’s settlement services claimed that the agency and two title services companies violated RESPA’s referral fee prohibition. The agency and title companies asserted that they satisfied RESPA’s affiliated business arrangements safe harbor provision because (i) they disclosed the arrangement to the homebuyers, (ii) the homebuyers were free to reject the referral, and (iii) the companies only received a return from the referral through their ownership interest. The homebuyers countered that the companies must also demonstrate that they were bona fide providers of settlement services under HUD’s ten factor test for distinguishing sham business arrangements, which HUD established in a 1996 policy statement. A district court granted summary judgment in favor of the companies, finding that HUD’s ten factor test was void for unconstitutional vagueness. On appeal, the Sixth Circuit affirmed but on different grounds. The Sixth Circuit held that HUD’s policy statement is not entitled to Chevron or Skidmore deference because the statement provides only ambiguous guidelines HUD intends to consider rather than HUD’s interpretation of the statute. As a result, the companies’ compliance with the three conditions set out in the statute sufficed to obtain the exemption under the affiliated business safe harbor provision. The Sixth Circuit noted that “a statutory safe harbor is not very safe if a federal agency may add a new requirement to it through a policy statement.”

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.