District Court Denies Lender’s Second Motion to Dismiss in RESPA Kickback Suit

The U.S. District Court for the Eastern District of North Carolina recently denied motions to dismiss an amended complaint in a putative class action alleging that a mortgage lender and real estate company were engaged in an illegal kickback scheme prohibited by RESPA. 

The plaintiffs filed their amended complaint after the court granted the defendants’ motions to dismiss the original complaint, finding that the plaintiffs had failed to allege an injury in fact sufficient to establish standing under RESPA.  WBK previously covered the court’s dismissal of the original complaint here.  

In their amended complaint, the plaintiffs alleged that their injuries stem from the real estate company recommending the lender as their “best and only option,” which caused the plaintiffs to pay a higher interest rate and to receive worse terms than they would have obtained otherwise.  Plaintiffs argued that they had adequately alleged this injury because one of the plaintiffs received two pre-approvals from different lenders with lower interest rates and different terms.  The plaintiffs also argued they adequately alleged that the lender charged them additional closing costs that they would not have paid to other lenders.  Defendants argued that because only one of the plaintiffs was prequalified, and because the prequalifications were for different types of loans than what the plaintiffs ultimately obtained, the allegations did not support an inference that the plaintiffs would have obtained a lower rate with another lender. 

The court acknowledged that discovery might ultimately reveal facts sufficient to disprove the plaintiffs’ allegations, but held that the plaintiffs had alleged facts sufficient to confer standing under RESPA.  The court held that the plaintiffs’ allegations that they received worse terms despite no material change to their financial status, and higher closing costs than they would have received elsewhere, were adequate to allege RESPA injuries.

The plaintiffs also amended their complaint to include state law UDAP and civil conspiracy claims, which the court also allowed to go forward.