The damage caused by Genuine Title, LLC, a now-defunct title company from Maryland, continues unabated. A federal court in Ohio recently certified a class action against the Ohio-based Emery Federal Credit Union for that company’s alleged participation in a kickback scheme with Genuine Title. The class-certification decision is so broad in its reasoning that all real estate business should be concerned.
In 2014, the Consumer Financial Protection Bureau and Maryland authorities began investigating Genuine Title for its purported payment of kickbacks to referring settlement service providers. The scheme quickly unraveled, Genuine Title went into receivership, and several large companies, including Well Fargo Bank and J.P. Morgan Chase shelled out large sums of money in fines and restitution for their involvement with Genuine Title. Several courts certified class actions against other companies that did business with Genuine Title.
In this case, Palombaro v. Emery Federal Credit Union, the court opened the door to much wider liability under the Real Estate Settlement Procedures Act, more sweeping than any one had believed possible even a few years ago. The problem lay in the statute of limitations, which in RESPA requires plaintiffs to sue within one year of the alleged violation.
That is a relatively short time period, so many class-action lawyers try to get around it. Recently, they have had some success doing that through the doctrine of equitable tolling, which permits a party to sue after the statute of limitations has lapse if that party acted diligently and an extraordinary circumstance prevented the party from discovering the violation earlier.
The Palombaro court allowed the case to proceed on a classwide basis due to the invocation of equitable tolling. The alarming aspect of the ruling is that the elements that the court required for that theory to succeed amounted to next to nothing: participation in a closing and a HUD-1 statement that does not show the supposed kickback. Any creative plaintiff’s lawyer can draft a lawsuit that alleges equitable tolling on grounds as flimsy as those.
As a result, equitable tolling may have become the rule and not the exception. In turn, that circumstance all but negates the one-year statute of limitations in RESPA and makes lawsuits under that statute nearly unlimited by time. That is dangerous.