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Appeals court rules against Maryland homebuyers in finder’s-fee cases

A federal appeals court has dealt back-to-back blows to Maryland homebuyers hoping to expand the interpretation of the state’s Finder’s Fee Act.

The law specifically prohibits mortgage brokers from charging a finder’s fee in any transaction in which the lender is also the broker. Companies who violate the law can be ordered to pay the homebuyer three times the amount of the finder’s fee.

In separate decisions issued on the same day, the 4th U.S. Circuit Court of Appeals held that the Finder’s Fee Act applies only to entities identified in the loan documents as “mortgage brokers” — not lenders — and that the law does not contain a conspiracy provision.

“The decisions were obviously disappointing for consumers in Maryland but we are considering our options,” said Benjamin H. Carney, an attorney for the homebuyers at Gordon, Wolf & Carney Chtd. in Towson.

Carney declined to specify whether those options include an appeal to the full 4th Circuit or the U.S. Supreme Court.

“We are very pleased with the decisions that were made by the 4th Circuit,” said Kathleen Murphy, president of the Maryland Bankers Association. “The court has confirmed that the transaction where the entity engaged in the transaction is acting as the lender but not the broker does not violate Maryland’s finder’s fee law.”

Brokers, not lenders

In the first case, Petry v. Prosperity Mortgage Co., the 4th Circuit said the Finder’s Fee Act expressly applies only to entities identified as “mortgage brokers” in loan documents. Prosperity had referred to itself as a “mortgage lender” in documents it provided to the borrowers, and therefore the law does not apply, the appeals court added.

The plaintiffs were a class of Maryland homebuyers who alleged Prosperity violated the act by inflating the settlement fee as compensation for having “found” Wells Fargo, which acquired the loan from Prosperity within days of settlement.

“Because Prosperity Mortgage was the lender named in the loan documents, it was not a mortgage broker under the Maryland Finder’s Fee Act, and the fees it charged were therefore not finder’s fees, which are defined as fees ‘imposed by a broker … for the broker’s services in procuring, arranging or otherwise assisting a borrower in obtaining a loan or advance of money,” Judge Paul V. Niemeyer wrote for the three-member appellate panel.

“To be sure,” Niemeyer added, “the definition of ‘mortgage broker’ means that an entity that is named as the lender in the loan documents cannot be a mortgage broker and therefore cannot violate [Commercial Law] Section 12-804(e) by charging a finder’s fee while serving as both broker and lender.”

In its decision, the 4th Circuit upheld Senior U.S. District Judge William M. Nickerson’s grant of summary judgment in favor of Prosperity, although on different grounds. Nickerson, who sits in Baltimore, ruled for Prosperity on June 20, 2013, based not on what it called itself in loan documents but on the homeowners’ failure to present any evidence that the company had charged an “excessive or redundant” fee beyond what would be expected of a lender at settlement.

No conspiracy to violate act

In the second case decided Thursday, Marshall v. James B. Nutter & Co., the 4th Circuit held a mortgage lender cannot be held liable under the act for having conspired with a broker in its charging of a finder’s fee at settlement.

The Finder’s Fee Act contains no conspiracy provision, the appellate panel affirmed.

Maryland case law also does not provide for a civil conspiracy cause of action against an entity that could not be held liable for the underlying offense, the court said, adding that the Finder’s Fee Act applies only to brokers, not to lenders like Nutter.

That 3-0 ruling was a loss for a different group of Maryland homebuyers who had sued Nutter, a mortgage lender, alleging it had conspired to acquire loans from broker Savings First for which Savings First had allegedly charged borrowers an undisclosed finder’s fee. The class in Marshall also was represented by Gordon, Wolf & Carney.

U.S. District Judge Richard D. Bennett, who sits in Baltimore, had granted summary judgment for Nutter on July 2, 2013, based on the same rationale the 4th Circuit later used.

Niemeyer, who wrote the opinion in Marshall as well, was joined in both published decisions by Judges James A. Wynn Jr. and Robert J. Conrad, a federal judge in Charlotte, N.C., who sat on the panel by designation.

The cases were in federal court based on diversity of citizenship between the class of Maryland homebuyers and the out-of-state financial entities and the amount in controversy exceeding $5 million.

 

NIEMEYER

WHAT THE COURT HELD

Case:

Petry et al. v. Prosperity Mortgage Co. et al, 4USCA, No. 13-1869. Reported. Opinion by Niemeyer, J. Argued May 14, 2014. Filed July 10, 2014.

Issue:

Can a mortgage company that identifies itself as a “lender” in loan documents be held liable to homebuyers under the Maryland Finder’s Fee Act?

Holding:

No; “[A]n entity that is named as the lender in the loan documents cannot be a mortgage broker and therefore cannot violate [the law] by charging a finder’s fee while serving as both broker and lender.”

Counsel:

Benjamin H. Carney for plaintiffs-appellants; Irene C. Freidel and Jay Norman Varon for defendants-appellees

RecordFax #14-0710-60 (19 pages)

 

NIEMEYER

WHAT THE COURT HELD

Case:

Marshall et al. v. James R. Nutter & Co., 4USCA, No. 13-1940. Reported. Opinion by Niemeyer, J. Argued May 14, 2014. Filed July 10, 2014.

Issue:

Can a mortgage lender be held liable for civil conspiracy under the Maryland Finder’s Fee Act?

Holding:

No; the finder’s fee act contains no conspiracy provision and Maryland case law does not provide for a civil conspiracy cause of action against an entity that could not be held liable for the underlying offense.

Counsel:

Martin E. Wolf for plaintiffs-appellants; Todd W. Ruskamp for defendant-appellee

RecordFax #14-0710-61 (13 pages)