Md. high court nixes civil suits over kickbacks under state real-estate law

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Homebuyers cannot sue companies allegedly involved in a real-estate kickback scheme under a Maryland law that makes it a crime for mortgage brokers to receive – and settlement and title companies to pay – referral fees, the states’ top court unanimously ruled Friday.

The Maryland General Assembly provided neither an express nor implied private cause of action in the state Real Property Article section pertaining to settlement procedures, the Court of Appeals held.

That section, 14-127, seeks to prevent consumer overcharges, lack of impartiality in referrals and diluted competition among settlement-service providers by punishing kickback participants, not compensating victims via civil litigation, the high court said.

Violators of the state law are guilty of a misdemeanor and face a maximum punishment of six months in prison and a $1,000 fine.

Section 14-127 is “not phrased along the lines of ‘all consumers of settlement services have the right to have kickback-free settlement services,’” Judge Shirley M. Watts wrote for the court. “Rather [the section] contains a general prohibition – namely, that persons connected ‘with the settlement of transactions involving land in the state may not pay to or receive from another any consideration to solicit, obtain, retain, or arrange real estate settlement business.’

“Significantly,” Watts added, “RP Section 14-127 does not mention, let alone identify, consumers or the public in general as a class who benefits from the provisions of the statute.”

The high court’s decision dealt a blow to a class of about 4,500 Maryland homebuyers suing Genuine Title LLC, of Owings Mills, and lending institutions in federal court. The homebuyers allege that between 2009 and 2014 they paid higher settlement fees to defray the amount Genuine Title paid the institutions in referral fees – essentially kickbacks – in violation of the state law, as well as the federal Real Estate Settlement Procedures Act.

U.S. District Judge Richard D. Bennett, who is presiding over the litigation in Baltimore, asked the Court of Appeals whether the state law provides a private cause of action for homebuyers. The high court saying “no” leaves the homebuyers with the federal law as their remaining legal recourse.

In explaining its answer, the Court of Appeals said that nothing in the Real Property Article’s nearly 50-year legislative history indicates the General Assembly’s intent to provide homeowners a cause of action in alleged kickback schemes.

“From RP Section 14-127’s plain language and legislative history, we have no difficulty in concluding that RP Section 14-127’s purpose was criminal in nature, and not to create an implied private right of action on behalf of a specified protected class of individuals,” Watts wrote.

Impact on homebuyers?

Attorney Timothy F. Maloney, who represents the homebuyers, said the high court’s decision denying claims under state law “will have little to no impact on the pending class” due to the continuing viability of their claim under the federal RESPA statute.

However, the court’s ruling will greatly impact individual homebuyers and those in small class-actions arising far from the federal courthouses in Baltimore and Greenbelt, he said. For these litigants, their only recourse will be RESPA, which, as a federal statute, enables defendants to have the cases moved to U.S. District Court.

“For a small claim for small consumers in the rural part of the state, they might not want to make a federal case out of it,” said Maloney, of Joseph, Greenwald & Laake P.A. in Greenbelt.

Maloney added the General Assembly should examine the issue, and he proposed a state law providing for a private cause of action. “For smaller cases, the consumers should have a state-based remedy.”

Maloney’s co-counsel is Michael Paul Smith, of Smith, Gildea & Schmidt LLC in Towson.

The lending institutions named with Genuine Title as defendants in the lawsuit include Wells Fargo Home Mortgage Inc., PNC Mortgage, MetLife Home Loans, Emery Federal Credit Union, Eagle National Bank and JPMorgan Chase Bank.

George J. Krueger, the defendants’ attorney before the high court, did not return telephone and email messages seeking comment Friday. Krueger is with Fox Rothschild LLP in Philadelphia.

The Court of Appeals rendered its decision in Edward J. and Vicki Fangman et al. v. Genuine Title LLC et al., Misc. No. 19, Sept. Term 2015.

The Fangmans filed their class-action lawsuit in Baltimore City Circuit Court on Dec. 6, 2013. Genuine Title successfully moved to have the case transferred to U.S. District Court the following month.

Lawyers for the plaintiffs asked Bennett on Monday to approve a $400,000 settlement with Chase Bank. A separate settlement was reached in February with Wells Fargo.

The remaining cases pending in federal court are Fangman et al. v. Genuine Title LLC et al., No. 1:14-cv-00081-RDB.