United States: CFPB Loses Borders Case: The Court Construes RESPA's Statutory ABA Exemption According To Its Plain Language

On July 12, 2017, a federal district court in Kentucky issued a summary judgment ruling for the defense in the ongoing Borders & Borders case1 brought by the Consumer Financial Protection Bureau (CFPB or Bureau). In this long-running case, the Bureau alleged that profit distributions paid to joint venture partners constituted illegal kickbacks in violation of Section 8(a) of the Real Estate Settlement Procedures Act (RESPA),2 and that the defendants could not rely on the safe harbor provision for "affiliated business arrangements" (ABAs) in Section 8(c)(4) of RESPA.3

The court, however, ruled that the defendants were entitled the protection of the ABA exemption as a matter of law, and dismissed the Bureau's case.

The Borders & Borders investigation: the CFPB picked up where HUD left off

Borders began in early 2011, when U.S. Department of Housing and Urban Development (HUD, which administered RESPA until July of that year) began investigating a Kentucky law firm, Borders & Borders PLC, for potential Section 8 violations. The genesis of HUD's inquiry was a series of title joint ventures (Title LLCs), entered into between various local real estate and mortgage companies (Joint Venture Partners) and Borders & Borders PLC.

In 2012, the Bureau took over the investigation and in October 2013, the Bureau filed a lawsuit against Borders & Borders PLC and its principals (collectively, Borders). The Bureau alleged that profit distributions made by the Title LLCs to the Joint Venture Partners were disguised kickbacks designed to compensate for referrals (i.e., the referral of real estate closing business to Borders & Borders PLC). The Bureau further alleged that the distributions:

are not subject to the "safe harbor" for affiliated business arrangements in [RESPA Section 8](c)(4) – which authorizes certain referrals to providers of settlement services – because the Title LLCs did not constitute bona fide "providers of settlement services" within the meaning of RESPA. The payments they made to the Individual Defendants and the Joint Venture Partners did not constitute bona fide returns on ownership interest . . .

The complaint set forth numerous allegations regarding the formation, ownership, and operation of the Title LLCs, which were staffed by a single independent contractor agent simultaneously shared by all of the Title LLCs and concurrently employed by Borders & Borders PLC.

When it oversaw RESPA, HUD had successfully entered into various consent orders relating to ABAs that were alleged to have shared common employees and/or have lacked the indicia of a genuine settlement service provider.4 HUD based these actions on a 1996 RESPA policy statement,5 which set forth factors that HUD would consider in determining whether an ABA constituted a "bona fide" provider of settlement services under RESPA (the Sham Guidelines). While the Bureau's Borders complaint did not expressly reference the Sham Guidelines, its theory and allegations were consistent with HUD's prior enforcement actions applying them.

The Sixth Circuit Court of Appeals throws in a monkey wrench with its Carter decision

The Bureau's loss in Borders may well be traceable back to a legal development that occurred in November 2013, just one month after the Bureau filed the Borders case, when the Sixth Circuit Court of Appeals issued a RESPA decision in another lawsuit between private parties, Carter v. Wells Bowen Realty.6

In Carter, a consumer attempted to challenge an affiliated title services provider under RESPA, alleging that the ABA ran afoul of HUD's Sham Guidelines. But the Sixth Circuit rejected the claim, ruling that the Sham Guidelines were not entitled to judicial deference and could not supplant RESPA's statutory safe harbor for ABAs. Because the plaintiff in Carter did not dispute that the defendants satisfied the statutory safe harbor criteria, her case was dismissed.

Post-Carter, the Bureau continues to fight in Borders

After Carter was decided, Borders asked the Court to dismiss the claims it was facing, arguing that the Bureau's theory impermissibly grafted a "bona fides" test onto the statutory safe harbor for ABAs, and that Carter—which was controlling authority in that court—confirmed that such a test is unenforceable. Borders noted that the Bureau was subjecting it to "expansive discovery" clearly aimed at exploring an alleged violation of the Sham Guidelines.

At that point, however, the Bureau squeaked by on its allegations. Instead of defending the Sham Guidelines, the Bureau argued that its theory was based on enforceable safe harbor criteria. The Bureau pointed to language in the RESPA statute providing that the person in a position to refer business may not receive any "thing of value" from the ABA other than "a return on the ownership interest,"7 which—as provided in RESPA regulations implemented by HUD—means that "bona fide" returns on ownership interests are protected.8

The Bureau also refused to concede that Borders had satisfied the ABA disclosure requirement, pointing to its allegations that Border's disclosure forms were not provided on a timely basis and did not conform to the precise wording of the RESPA regulation's model form.

On February 12, 2015, the court denied Borders' motion, allowing the Bureau's case to proceed.

The Bureau's fatal flaw: overreaching to argue what it believes the law should be, rather than how it is written

As we have seen in Bureau's ongoing enforcement proceeding against PHH, the Bureau is willing to aggressively advocate for what it believes RESPA (and no doubt other federal consumer financial laws) should be—as opposed to for what the statute's plain language provides. The Borders case is another example of this overreaching.

First, without the Sham Guidelines, the Bureau was unable to overcome the ABA safe harbor. The Borders complaint alleged that the Title LLCs did not have their own employees, perform substantive title work, or manage their own affairs. Of course, however, these are not statutory or regulatory requirements, but rather factors set forth in HUD's Sham Guidelines. In its decision, the court did not analyze these "sham" factors, but rather opted to address the statutory ABA safe harbor criteria only. The court ruled:

Given that Borders & Borders disclosed the relationship with the Title LLCs, the customers could reject the referral, and the Bureau failed to show that the Title LLCs received anything of value beyond their ownership interests, there is no genuine dispute of material fact that Title LLCs arrangement with Borders & Borders qualifies as an affiliated business relationship protected under Section 8(c)(4) of RESPA, and Borders & Borders is entitled to summary judgment as a matter of law.

In so holding, the court considered the disclosure requirements set forth in the RESPA statute and found that Borders' disclosures provided the essential information. While the language was not exactly the same as the regulation's model form, the court did not believe those differences "impair[ed] the effectiveness" of the disclosure.

Parting Thoughts

The Borders summary judgment ruling supports the applicability of RESPA Section 8(c)(4) as a valid safe harbor that should be applied according to its plain language.

The court reigned in, as other courts have done,9 the Bureau's insistence that an ABA disclosure form must adhere to the exact content and format of the model form or subject the ABA participants to serious exposure (e.g., potential treble damages) under RESPA.

The decision also supports an apparent developing movement of industry participants to reconsider the effectiveness of joint ventures and other ABAs, as the Bureau thus far has had success in chilling the use of marketing agreements.

Nevertheless, we close with some words of caution. First, the court did not reject all of the Bureau's RESPA theories; it took some pains to explain why the Bureau had shown that the elements of a Section 8(a) violation were present (albeit saved by the ABA safe harbor). Second, courts outside of the Sixth Circuit need not defer to Carter, and might be willing to consider the Sham Guidelines to be in play. Finally, the Bureau also may have more success enforcing the Sham Guidelines and other concepts advanced in Borders in future enforcement actions that it chooses to pursue administratively.


1 Consumer Fin. Prot. Bureau v. Borders & Borders, PLC, Case No. 3:13-CV-1047 (W.D. Ky.).

2 12 U.S.C. § 2607(a).  This provision prohibits any person from giving or receiving any "thing of value" pursuant to an "agreement or understanding" to "refer" "settlement services" that "involve a federally related mortgage loan."

3 12 U.S.C. § 2607(c)(4).  Under this provision, an ABA qualifies for the safe harbor if it meets three conditions: (1) the person making the referral must disclose the arrangement to the client; (2) the client must remain free to reject the referral; and (3) the person making the referral cannot receive any "thing of value" from the ABA other than a return on the ownership interest (or franchise relationship). Id.

4 E.g., Settlement dated July 1, 2003 between HUD and TitleVentures.com, Inc. et al.; Settlement Agreement dated March 12, 2005 between HUD and Land Settlement Services, Inc. et al; Settlement Agreement dated July 8, 2005 between HUD and First American Title Insurance Company d.b.a. Memphis Title Company; Settlement Agreement dated December 15, 2005 between HUD and Downing Homes, LLC; Settlement Agreement dated October 31, 2007 between HUD, the Florida Department of Financial Services, the Florida Office of Insurance Regulation and The First American Title Insurance Company; Settlement Agreement dated April 30, 2008 between HUD and American Land Title, LLC et al.; Settlement Agreement dated November 21, 2008 between HUD and Grand Texas Homes, et al.  Copies of the foregoing settlement agreements are on file with the authors.

5 1996-2 Policy Statement on Sham Controlled Business Arrangements, 61 Fed. Reg. 29,258-29,264 (June 7, 1996).

6 Carter v. Wells Bowen Realty, 736 F. 3d 722 (6th Cir. 2013).

7 12 U.S.C. § 2607(c)(4)(C).

8 12 C.F.R. § 1024.15(b)(3)(iii)("Neither the mere labeling of a thing of value, nor the fact that it may be calculated pursuant to a corporate or partnership organizational document or a franchise agreement, will determine whether it is a bona fide return on an ownership interest or franchise relationship. Whether a thing of value is such a return will be determined by analyzing facts and circumstances on a case by case basis.").

9 See White v. JRHBW Realty, Inc., No. 2:14-cv-01436-RDP, 2015 U.S. Dist. LEXIS 123432, at *8-9 (N.D. Ala. Sept. 16, 2015)(concluding, with reference to an ABA disclosure form that the Bureau had contended was ineffective, that "this court cannot say that the effectiveness of the disclosure was impaired in any way because it was not in the exact form of Appendix D to Regulation X. Therefore, [defendant] qualifies for the Section 8(c)(4) safe harbor provision.").

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions