The one-year statute of limitations on Real Estate Settlement Procedures Act (RESPA) lawsuits could be the undoing of a class-action suit filed against Realogy Holdings, franchisor of some of the best-known brands in real estate, and mortgage lender PHH Mortgage Corp. The lawsuit alleges that the joint venture between Realogy and PHH is a “sham” entity that violates RESPA, but Realogy and PHH scored a big win last week in their quest to get the case thrown out of court.

  • A lawsuit alleging that PHH Home Loans, a joint venture between Realogy Holdings and PHH Mortgage Corp., facilitated "unlawful referral fees and kickbacks" was challenged due to the RESPA statute of limitations.
  • On April 5, the court granted the motion to dismiss the lawsuit.
  • The decision is a win for Realogy and PHH right now, but options still remain open to the plaintiffs, too.

The one-year statute of limitations on Real Estate Settlement Procedures Act (RESPA) lawsuits could be the undoing of a class-action suit filed against Realogy Holdings, franchisor of some of the best-known brands in real estate, and mortgage lender PHH Mortgage Corp.

The lawsuit alleges that the joint venture between Realogy and PHH is a “sham” entity that violates RESPA, but Realogy and PHH scored a big win last week in their quest to get the case thrown out of court.

The embattled partners have been accused of using their relationship to funnel kickbacks to settlement service providers. They moved for the court to dismiss the lawsuit based on RESPA’s one-year statute of limitations — a motion that a California federal court granted on April 5.

The court’s decision came days before the U.S. Court of Appeals for the D.C. Circuit entertained oral arguments in PHH Corp.’s battle against the Consumer Financial Protection Bureau (CFPB) for allegedly overstepping its regulatory authority in assessing a $109-million disgorgement penalty against the mortgage lender for allegedly funneling kickbacks to mortgage reinsurance companies in violation of RESPA.

Last week was a pretty good one for PHH, RESPA-wise — but the latest development in Strader, et al., v. PHH, et al., may not be the last word in what some compliance experts are calling the “World Series of RESPA cases.” Here’s why.

Real estate-mortgage joint venture faces scrutiny

The Strader case, filed Nov. 25 in the U.S. District Court for the Central District of California, concerns the activities of PHH Home Loans, a joint venture that PHH Mortgage and Realogy entered into in 2005.

The joint venture provides mortgage origination services to about 790 real estate offices within NRT LLC, a subsidiary of Realogy and one of the nation’s largest real estate brokerage companies.

It also gives PHH the exclusive right to use the Century 21, Coldwell Banker and ERA brand names in marketing PHH mortgage loan products through PHH Home Loans and other arrangements that PHH has with Realogy.

PHH Home Loans was set up as a standalone company, of which PHH controls 50.1 percent and Realogy controls 49.9 percent.

But about two years ago, as the CFPB began to ramp up its RESPA oversight and initiated an administrative proceeding and $109-millon penalty against PHH Corp. — for allegedly referring consumers to mortgage insurers in exchange for kickbacks — some began to question whether PHH’s relationship with Realogy involved a similar fact pattern.

Asked to clarify the issue during one of PHH’s second-quarter earnings calls last year, CEO and President Glen Messina asserted that the joint venture “is, in fact, a true separate legal entity, separately capitalized, with its separate advisory board, its own people, its own licensing.

“It is, in fact, a separate company, a separate entity that has been established in accordance with all required laws and regulations,” Messina said.

A question of time

But as PHH’s battle with the CFPB continued — a complex matter that is still limping toward resolution — PHH Home Loans decided to play it safe. In October 2015, the company announced in a regulatory filing its decision to remove certain provisions from its strategic relationship agreement (SRA) that referred to Realogy as PHH’s “exclusive recommended real estate broker.”


At the time, the companies said little about the SRA amendment besides maintaining that PHH Home Loans was compliant with RESPA and all other applicable regulations and laws, but some wondered if the decision hinted that some possible RESPA challenges could be brewing for the joint venture. And when the plaintiffs in the Strader case filed suit just a few weeks later, those same speculators wondered if the two events could be connected.

The attorneys in the Strader case didn’t shy away from that speculation, calling the decision by PHH and Realogy to delete the mandatory referral provision from their SRA “telling” and questioning the companies’ timing of the decision.

“Just months prior to the amendment, PHH was found liable for similar RESPA violations in connection with PHH’s use of subsidiaries Atrium Insurance Corp., and Atrium Reinsurance Corp., to extract referral fees and kickbacks disguised as mortgage reinsurance premiums from homebuyers,” the complaint noted.

“As part of several injunctive penalties in the decision, the CFPB enjoined PHH from referring borrowers to any provider of a settlement service if that provider has agreed to purchase a service from PHH, and if payment for that service is triggered by the referrals. This provision seeks to prevent PHH from entering into illegal referral agreements with respect to any settlement service, and it also applies for 15 years from the date the order becomes effective, as a further means of preventing PHH from committing similar violations of RESPA.

“In leveling these and other penalties, the CFPB noted in its decision that PHH’s violations persisted for over 15 years and that there was no indication that PHH changed its practices due to their illegality (as opposed to merely having become unprofitable), nor that PHH took any steps to make future violations less likely,” the complaint stated.

Lawsuit alleges PHH Home Loans facilitated ‘unlawful referral fees and kickbacks’

Serving as class leaders in the case are Lester L. Hall Jr., who purchased a home in April 2007 with a loan from PHH, which referred him to Equity Title and West Coast Escrow, both of which operate as part of Realogy’s Title Resource Group, or TRG, for settlement services; and Timothy L. Strader Sr., who alleged that on his April 2011 mortgage loan transaction, PHH “caused Merrill Lynch to refer” him to Equity Title for title insurance and to TRG Services for other settlement services.

The California homeowners serve as representatives for a class of “hundreds of thousands” of borrowers who may have been harmed by PHH Home Loans, which the lawsuit alleges is designed to “facilitate and disguise the payment of unlawful referral fees and kickbacks in exchange for the referral of title insurance and other settlement services to Realogy’s subsidiary, TRG.”

The lawsuit also alleges that PHH’s SRA requires it to direct partnered banking institutions like Morgan Stanley, Merrill Lynch, HSBC and UBS to refer title insurance and other settlement services to TRG, but the companies do not properly disclose their affiliation to consumers.

In addition, the complaint alleges that “PHH also receives disguised kickbacks and referral fees for the referrals made via the PLS partners, in the form of, among other things, the right of first refusal over the purchase of the servicing rights to mortgages originated by PHH Home Loans.”

This conduct violated Sections 8(a) and 8(c)(4) of RESPA, particularly its prohibitions on referral fees and kickbacks, the complaint alleges.

In addition to PHH, Realogy and TRG, the complaint also names as defendants:

  • RMR Financial, a California limited liability company founded in 2005 that also does business as Princeton Capital, Mortgage California and First Capital
  • NE Moves Mortgage, a Massachusetts limited liability company founded in 2005
  • West Coast Escrow, a California limited liability company founded in 1984 that is a wholly owned subsidiary of TRG
  • NRT, which also does business as Coldwell Banker, Sotheby’s International Realty, Citi Habitats, The Corcoran Group and ZipRealty

The lawsuit seeks $4,950 per class member, plus three times the amount of any other settlement service fees paid to TRG for each federally related mortgage loan that borrowers obtained from PHH, PHH Home Loans or one their partners.

Realogy and PHH strike back

The defendant companies were quick to strike back on Feb. 5 with a motion to dismiss the RESPA claim, arguing that the plaintiffs’ claims may be too little, too late.

The companies’ attorneys — a veritable “RESPA Dream Team” including nationally recognized RESPA attorneys Mitchel Kider, Wendy Wildung and Calvin Litsey — argued that the lawsuit should be dismissed because civil actions brought under the portions of RESPA cited in the plaintiffs’ complaint have a one-year statute of limitations.

The mortgage transactions described by Hall and Strader occurred in 2007 and 2011, respectively, but this lawsuit wasn’t filed until 2015 — far exceeding the one-year statute of limitations attached to the specific RESPA claims brought forth in this case, the defendants’ attorneys argued.

Admitting the defendants’ argument had legal standing, the plaintiffs asked the court to reconsider the statute of limitations issue based on equitable tolling, a law principle stating that a statute of limitations does not apply in cases where the plaintiff, despite use of due diligence, could not or did not discover the injury until after the expiration of the limitations period.

According to the plaintiffs, they didn’t realize they had applicable claims until Nov. 5, 2015, when PHH mentioned the SRA and its operating agreement as part of the regulatory filing announcing amendment of the agreement.

Although they were aware before closing that they were being referred to TRG for title insurance and other settlement services — and signed the requisite disclosures acknowledging the companies’ relationships — “the details of the SRA … were never publicly disclosed,” they asserted.

So the plaintiffs asked the court to suspend that deadline by 10 years — specifically, to Jan. 31, 2005, the date that Realogy and PHH entered into their SRA.

Equitable tolling has been used with some success in other RESPA cases, but undeterred, the defendants’ attorneys submitted about 100 pages of publicly available regulatory filings that mentioned the companies’ arrangements as proof that the plaintiffs could have been aware of the SRA sooner.

“Plaintiffs did absolutely nothing to investigate a possible RESPA claim during the one-year statute of limitations, and they continued to do nothing for years,” the motion to dismiss stated. “They then decided to file suit ‘on information and belief’ based upon a 2015 SEC filing that discloses the same information that has been disclosed in other SEC filings since 2005.

“Plaintiffs have not pleaded — and cannot plead — facts to establish due diligence or that any extraordinary circumstances justified their delay. As a result, they have not, and cannot, state a claim for equitable tolling or equitable estoppel/fraudulent concealment. Plaintiffs’ claims are time-barred, and the amended complaint should be dismissed in its entirety with prejudice,” the companies added.

Court agrees; attorneys and industry react

On April 5, the court agreed with the defendants, granting their motion to dismiss, with no discussion of either side’s arguments.

For Ken Trepeta, president and executive director of the Real Estate Services Providers Council Inc. (RESPRO), a trade group that devoted to fostering legally compliant partnerships, joint ventures and subsidiaries, the court’s decision was welcome news.

“It is a very positive development, and at a minimum, demonstrates that there has been significant overreach in the interpretation of RESPA by plaintiffs and others,” said Trepeta, who has been closely monitoring developments in the CFPB’s case against PHH this week.

However, the court’s decision doesn’t necessarily mean the end of the road for Realogy, PHH and their affiliates, as the court gave the plaintiffs time to amend their complaint to address the points raised by the companies.

“In preparing the second amended complaint, plaintiffs shall carefully evaluate the contentions set forth in defendant’s motion, including the contentions regarding the statute of limitations and equitable tolling. The court expects that defendants will agree to any amendment(s) that will cure the alleged defect(s),” the court stated.

The court gave the plaintiffs until April 21 to submit an amended complaint “to cure, to the extent they believe is warranted by existing law, the alleged defects outlined in defendants’ motion.”

Alan Greenberg, one of the plaintiffs’ attorneys and partner in the Costa Mesa, Calif.-based law firm Greenberg Gross LLP, said the plaintiffs will timely file an amended complaint next week.

“What has happened so far are procedural obstacles put in our path by the defendants in an attempt to delay their day of reckoning,” Greenberg said.

Howard Privette, one of Greenberg’s colleagues, noted that “the defendants did not even address the merits in their motion to dismiss.”

“We will continue to pursue this. The equitable tolling issue is something we are likely to address further in an amended complaint,” Privette said.

Marx Sterbcow, managing partner in the New Orleans law firm Sterbcow Law Group LLC and a prominent RESPA attorney, called the court’s decision “a win for Realogy, PHH and the other defendants right now,” but added, “the question is whether the plaintiffs can fix their admission that they didn’t meet statute of limitations requirements/equitable tolling issue.”

Sterbcow listed a few different possible scenarios gleaned from his years of legal experience in the RESPA realm:

  • The plaintiffs could submit that filing, correcting the statute of limitations/equitable tolling deficiency
  • They could file a new lawsuit with new plaintiffs who closed their mortgage transactions within RESPA’s statute of limitations
  • They could just drop the lawsuit altogether

“We have to watch and see,” Sterbcow said.

Realogy declined to comment on these developments. PHH did not respond to a request for comment by press time.

Both companies mentioned the case in regulatory filings made around the time of their quarterly earnings statements in February.

“We believe that we and the joint venture have complied with RESPA, the regulations promulgated thereunder and existing regulatory guidance. There can be no assurance, however, that if the action continues and a large class is subsequently certified, the plaintiffs will not seek a substantial damage award, penalties and other remedies. Given the early stage of this case and the novel claims and issues presented, we cannot estimate a range of reasonably potential losses for this litigation. The company will vigorously defend this action,” Realogy said in a 10K filing on Feb. 24.

Still fighting the CFPB’s charges against its relationships with mortgage reinsurers, PHH added in its own regulatory filing: “There can be no assurance that the ultimate resolution of these matters will not result in losses in excess of the company’s recorded accrual, or in excess of the estimate of reasonably possible losses. As a result, the ultimate resolution of any particular legal matter, or matters, could be material to the company’s results of operations or cash flows for the period in which such matter is resolved.”

Email Amy Swinderman

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