One of the important limitations in the Real Estate Settlement Procedures Act is the short time in which consumers can sue for violations of its protections: one year. But a new decision from a Pennsylvania federal court threatens to extend that period much longer—perhaps indefinitely.
The case, White v. PNC Financial Services Group, involves alleged RESPA infractions stemming from so-called captive reinsurance arrangements. The scheme has been alleged repeatedly before: a lender requires a borrower with less than 20% equity in her new home to buy private-mortgage insurance and the insurer then pawns off some of the risk to a reinsurance company that is partly owned by the lender. This scenario supposedly results in kickbacks that violate RESPA.
The main RESPA issue in the White decision was whether the plaintiffs could get around the one-year statute of limitations. They previously tried to do that, via the doctrine of equitable tolling, but a decision last year from the United States Court of Appeals for the Third Circuit threw out that option. The plaintiffs’ new theory, the continuing-violation doctrine, posits that a separate legal breach arises each time an improper payment is made—here, when the consumer pays her monthly premium for private mortgage insurance.
The court in White found that, even though equitable tolling has been disallowed, plaintiffs can assert the continuing-violation doctrine. That sort of liability, if successful, would cause the most risk for settlement-service companies that receive payments long after a closing has occurred, mortgage companies for instance. Other businesses, like title insurers or appraisers, typically only receive one payment at closing and, in theory, should not be vulnerable to the continuing-violation doctrine.
White is problematic for at least two reasons. First, it claims to rely on the PHH decision from the Consumer Financial Protection Bureau, but then acknowledges that even that ruling declined to allow the continuing-violation doctrine. Second, White envisions wide-ranging RESPA liability for acts that occur apart from a closing, like the accepting of a kickback years before or after a sale occurred. This idea could trigger nearly endless RESPA liability in a situation, for example, in which an on-going referral scheme is alleged to exist.