A Kentucky real estate law firm on Thursday prevailed against the Consumer Financial Protection Bureau's accusations that attorneys orchestrated a web of shell companies to make improper payments for referrals.
U.S. Judge Charles Simpson III ruled for Borders & Borders, a family-owned firm in Louisville that focuses on residential real estate closings. The consumer bureau in 2013 sued the firm, accusing it of operating nine joint ventures with local real estate service providers to disguise improper kickbacks as legitimate profit-sharing.
The CFPB s complaint, filed in the U.S. District Court for the Western District of Kentucky, alleged that when one of the partner companies referred a homebuyer to Borders & Borders for real estate settlement services, the firm would arrange for title insurance to be issued by one of the joint ventures.
The nine joint ventures, according to the CFPB s complaint, lacked the typical trappings of a bona fide business, including office space, phone numbers and email addresses. The companies shared an independent contractor who also worked for Borders & Borders, and each only issued title insurance to homebuyers who had been referred to the firm. The firm said its ventures had complied with applicable federal law.
Borders & Borders, represented by Stites & Harbison, shut down the joint ventures after learning about a U.S. Department of Housing and Urban Development investigation in February 2011. That investigation was later transferred to the CFPB when the agency was created in July 2011 and given authority to enforce the anti-kickback provisions of the Real Estate Settlement Procedures Act, or RESPA.
We are very pleased that the court agreed with what we've been saying for six and a half years: our affiliated business arrangements were designed and operated to be fully compliant with RESPA, Borders & Borders said in a statement Friday.
The CFPB declined to comment Friday.
Announcing the lawsuit in October 2013, CFPB Director Richard Cordray said, Today s action sends a clear message that companies cannot design business structures to hide illegal kickbacks. The CFPB will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses.
In his ruling, Simpson said Borders & Borders, which employs six lawyers, qualified for a safe harbor provision in the Real Estate Settlement Procedures Act. That provision shelters affiliated business arrangements, so long as those arrangements are disclosed to the consumer being referred to the partner company. The bureau had argued that the nine joint ventures were ineligible for the safe harbor because they were not bona fide providers of settlement services, nor did they make adequate disclosures of their business arrangement to borrowers and homebuyers.