MD District Court Grants Class Cert for Kickback Claims Against Lender

A federal district court in Maryland recently granted class certification in a case in which borrowers sued their mortgage lender for allegedly taking kickbacks from a title company in violation of RESPA and RICO.

The borrowers allege that they paid fees for title and settlement services amounting to nearly double the fees charged by other title companies for similar services; and they allege these inflated fees were used to fund kickbacks to the lender in violation of RESPA.  According to the borrowers, the title company paid the kickbacks to third-party marketing companies on the lender’s behalf.  Although the lender has asserted the defense that these payments were for co-marketing efforts as allowed under RESPA, the court did not reach any conclusion about the borrowers’ claims or the lender’s defense and instead explained that those issues will be determined when the court reaches the merits of the case and not at this class-certification stage.

The borrowers’ RICO claims are predicated on the same allegations—specifically, the borrowers allege that by structuring the kickbacks as payments to third-party companies, the lender was attempting to hide these alleged kickbacks and thus committed mail fraud and illegal money laundering.

Although each of the named-plaintiff borrowers was able to show they paid these fees, the lender argued that 456 of the 754 putative class members did not pay any inflated fee because the lender paid all of those borrowers’ closing costs through lender credits.  The lender challenged these 456 putative class members’ standing to sue on the logic that without paying any fees, they have no damages; and without damages, they have no legal standing to sue.

In reaching its decision to certify the plaintiff class, the court rejected the lender’s argument, stating that for purposes of a class certification decision, standing is determined based on the injury alleged to be suffered by the named plaintiffs only.  (Although in order to ultimately prevail on their respective claims, each class member will have to prove their damages and standing.)  As the lender had not challenged the standing of the named plaintiffs, class certification was granted and the case will now move forward.