Rank-and-file employees in the real estate industry are normally—and understandably—loathe to add yet another form to the flood of documents parties already face at closing. But, once in a while, a lawyer’s insistence on using a new disclosure will pay off and a previously unwelcome paper will successfully ward off a massive legal attack. As the result of a recent court ruling, M&T Bank Corp. finds itself in that very position, thanking its forward-thinking attorneys.
In the underlying lawsuit, Cunningham v. M&T Bank Corp., a group of Pennsylvania homeowners accused M&T of violating the Real Estate Settlement Procedures Act (RESPA) by referring their applications for private mortgage insurance (PMI) to an outside insurer. The problem, according to the homeowners, was that the insurer later defrayed some of its risk by obtaining reinsurance through an affiliate of M&T. RESPA prohibits that, the homeowners claimed.
Lawsuits about this sort of “captive” reinsurance arrangement are nothing new and have plagued the industry for decades. M&T got this case dismissed because it convinced the trial judge that the plaintiffs waited too long to file their lawsuit, in violation of RESPA’s one-year statute of limitations.
On appeal, the United States Court of Appeals for the Third Circuit agreed with that conclusion. The key to the reviewing court’s decision was the disclosure form M&T had all borrowers sign. In that form, the possibility of captive reinsurance was disclosed and consumers were given the choice to opt out—which none of the plaintiffs did. The plaintiffs’ awareness, through those forms, of a possible cause of action prevented them from suing outside RESPA’s one-year time limit.
From the decision, it is not clear whether M&T has any borrowers who still fall within that one-year period and, in theory, could try to assert the same allegations. So M&T may not be out of the woods yet. But, in the worst-case scenario, M&T appears to have capped its potential liability at the one-year mark, a huge (even if partial) win. Last year, PNC Bank lost its effort to defeat RESPA claims on similar grounds of untimeliness.
The bank should not rest on its laurels, though. Class-action lawyers often find ways around statutes-of-limitations problems by, for example, using an alleged RESPA violation as the predicate for a purported violation of a different law with a longer limitations period. So it remains to be seen whether M&T’s form will withstand other assaults. But, for now, kudos to M&T’s lawyers.