Alert March 09, 2010

Ninth Circuit Rules that RESPA Does Not Prohibit “Overcharges” and that the National Bank Act Preempts California Law Claims Based On “Overcharges”

The Ninth Circuit Court of Appeals handed down a ruling with favorable implications for residential mortgage providers.  In Martinez v. Wells Fargo Home Mortgage, Inc., et al., slip op. (9th Cir. Mar. 9, 2010), the Court ruled that (1) the Real Estate Settlement Procedures Act does not regulate what a lender may charge for providing a settlement service, and so does not give a right to sue the lender for charging an allegedly-excessive fee; and (2) the National Bank Act preempts California law claims based on fee overcharges and alleged failure to disclose that the fee was not the actual cost of the settlement service. 

Martinez involved a putative class action brought by a California couple who refinanced their home mortgage loan through Wells Fargo.  Plaintiffs alleged that Wells Fargo charged them an $800 underwriting fee that allegedly was excessive, because it was not “reasonably related” to Wells Fargo’s actual costs of performing the underwriting, in violation of Section 8(b) of RESPA and California law.  The district court granted Well Fargo’s motion to dismiss, and that order was affirmed in all respects by the Ninth Circuit.

In deciding the RESPA claim, the Ninth Circuit joined a number of other circuit courts in rejecting HUD’s position that RESPA regulates overcharges.  The Court concluded that plaintiffs’ California law claim, that Wells Fargo’s conduct was “unfair” when it allegedly overcharged for underwriting fees and marked-up tax service fees, is preempted by the National Bank Act.  The Court held that OCC regulations implementing the National Bank Act, which empower national banks to set fees in their discretion and permit national banks to make real estate loans without regard to state laws concerning disclosures and advertising, independently barred the claim.  The Court also rejected plaintiffs’ claim that Wells Fargo violated California law by knowingly making a false statement on the HUD-1 Settlement Statement by listing the amounts charged to the borrower for  services, instead of what it cost Wells Fargo to perform or subcontract those services.  The Court rejected this claim, in part, because there is no requirement to disclose actual costs on the HUD-1, but only the “charges” to the borrower.

Goodwin Procter LLP attorneys Thomas M. Hefferon and William F. Sheehan represented Wells Fargo in the district court case and before the Ninth Circuit.  Click here for Martinez.