United States v. Graham Mortg. Corp., Crim. A. No. 82-80589.

• Decision Date: 17 May 1983
• Docket Number: Crim. A. No. 82-80589.
• Parties: UNITED STATES of America, Plaintiff, v. GRAHAM MORTGAGE CORPORATION, Richard E. Chapin, Thomas P. Heinz, Manford Colbert, Defendants.
• Court: U.S. District Court — Western District of Michigan

564 F. Supp. 1239

UNITED STATES of America, Plaintiff, v. GRAHAM MORTGAGE CORPORATION, Richard E. Chapin, Thomas P. Heinz, Manford Colbert, Defendants.

Crim. A. No. 82-80589.

United States District Court, E.D. Michigan, S.D.

May 17, 1983.

COPYRIGHT MATERIAL OMITTED

Stephen T. Robinson, Asst. U.S. Atty., Detroit, Mich., for plaintiff.

Gregory L. Curtner, Gerald E. Rosen, Noah Yanich, James A. Smith, Michael B. Peisner, Detroit, Mich., Sanford Rosenthal, Southfield, Mich., and Thomas A. Roach, Detroit, Mich., for defendants.

MEMORANDUM OPINION AND ORDER DENYING DEFENDANTS' MOTIONS TO DISMISS AND MOTION FOR DISCOVERY OF GRAND JURY MATERIALS

JULIAN ABELE COOK, Jr., District Judge.

The United States Government commenced the above-entitled cause of action by filing an Indictment with the Court on December 3, 1982. The Indictment contained six Counts. Count I alleged that Defendants, Graham Mortgage Company Graham, Richard E. Chapin Chapin, Thomas P. Heinz Heinz, and Manford Colbert Colbert "did knowingly, wilfully and unlawfully combine, conspire and agree together and with each other to commit an offense against the United States, that is, to give and receive a thing of value pursuant to an agreement and understanding, oral and otherwise, the business incident to and part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person or corporation, in violation of Section 8 of the Real Estate Settlement Procedures Act of 1974 RESPA; Title 12, United States Code, Section 2607," all in violation of Section 371 of Title 18, United States Code. Count II alleged that Graham, Chapin, Heinz, and Colbert "accepted, a fee, kickback and thing of value, that is, interim financing in a reduced points charge in connection with the purchase and sale by Rose Hill Realty, Inc. of residential property located at 18304 Ashton, Detroit, Michigan, pursuant to an agreement and understanding, oral and otherwise, the business incident to and part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person or corporation, that is, in return for Rose Hill Realty, Inc.'s referral to Graham Mortgage Corporation of applicants for Federal Housing Administration and Veterans Administration guaranteed and insured residential property loans; in violation of Title 12, United States Code, Section 2607 and Title 18, United States Code, Section 2." Counts III through VI also allege kickbacks relating to real estate settlements, similar to that alleged in Count II.

On February 11, 1983, the Government filed a Superseding Indictment with the Court, which substantially embodied the allegations of the original Indictment, but contained an altered mens rea allegation. On March 16, 1983, Graham and Heinz filed Motions to Dismiss the Superseding Indictment. On the same date, Chapin and Heinz filed separate Motions, in which they seek the disclosure of certain information that had been presented to the Grand Jury. On March 17, 1983, Chapin filed his Motion to Dismiss with this Court. On March 31, 1983, the Government filed its opposition to all of the Defendants' Motions. On April 13, 1983, the Court heard oral argument from the parties on the pending Motions. At the conclusion of oral argument, the Court took the respective Motions under advisement. Those Motions are currently before the Court for resolution.

I. SUMMARY OF FACTUAL ALLEGATIONS

Graham, a wholly-owned subsidiary of Manufacturers National Bank, is engaged in the mortgage banking business (FHA insured and VA guaranteed mortgage loans). Chapin and Heinz were officers of Graham. Chapin was a Director and Executive Vice President, and Heinz was an Assistant Vice President, who managed the Southfield (Michigan) Branch of Graham. Rose Hill Realty, Inc. RHR was a real estate company with which Graham did business. RHR is now dissolved as a corporate entity. Colbert was President of RHR. In addition to performing the traditional business of a realtor, RHR was also engaged in the purchase and sale of Detroit area houses in its own name.

In September of 1975, Graham allegedly agreed to provide RHR with the "interim financing" that RHR needed in order to purchase and sell properties in its own name. In return for each interim loan, RHR was allegedly required to refer two of its regular real estate business customers, who sought VA and FHA mortgage loans, to Graham. From September of 1975 through May of 1979, the Government claims that RHR grossed over one million dollars from the sale of at least seventy Detroit area houses that it had purchased, for the most part, with the interim loans from Graham. RHR allegedly purchased these homes at an average cost of $8,025.00, held them for an average of one hundred fifty two days, and then resold them for an average price of $18,701.00. The purchasers of the RHR owned houses purportedly financed their purchases through the VA and FHA mortgage loans which had been obtained from Graham. The Government contends that RHR paid Graham an average point charge of 1.86 on these transactions. During the same period, at least one hundred and twenty one RHR brokerage clients allegedly financed the purchase of Detroit area houses (not owned by RHR) with FHA and VA mortgage loans obtained from Graham. The Government asserts that the sellers of these properties paid Graham an average point charge of 5.26.

The Superseding Indictment claims in one conspiracy Count, and in five substantive Counts, that the interim financing and reduced points charge which Graham provided to RHR was a kickback in return for RHR's referral of business to Graham, and that this is a violation of Section 8(a) of RESPA. Section 8(a) states:

No person shall give and no person shall accept any fee, kickback or thing of value pursuant to an agreement or understanding, oral or otherwise, the business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

The Court will now examine the various issues which have been raised by the Defendants in their respective pending Motions (to wit, dismissal of the Superseding Indictment and request for certain Grand Jury material).

II. MORTGAGE AS "SETTLEMENT SERVICE"

Defendants argue that Section 8(a) of RESPA prohibits only those persons who provide "settlement services" from paying fees for referring such business. They contend that the plain language of Section 8(a) does not cover the payment of referral fees by persons who make mortgage loans because the making of a loan does not constitute a settlement service.

The Government, by contrast, argues that real estate financing is a settlement service. The Government, in arguing that Section 3(3) of RESPA is unambiguous, concludes that real estate financing comes within that definition.

Section 3(3) states that settlement services include "any service provided in connection with a real estate settlement." This Court must review the language of RESPA in an effort to determine whether the financing of real estate financing constitutes "business incident to or a part of real estate settlement service."

Section 2601 of Title 12, United States Code, which reflects the Congressional purpose in enacting RESPA, is broad, in that "the purpose of this chapter is to effect certain changes in a settlement process for real estate that will result ... in the elimination of kickbacks or referral fees that tend to increase unnecessarily costs of certain settlement services." This Court believes, and does determine, that the language of Section 3(3), which defines settlement service, does encompass the provision of real estate financing. Certainly, the provision of real estate financing is a service. In light of the broad Congressional purpose, the clear import of the definition, as set forth in Section 3(3), would be to include real estate financing within the definition of a settlement service.

Although the language of Section 3(3) is broad, general language is not necessarily ambiguous when Congressional objectives require broad terms. Congress realized the need for significant reforms in the real estate settlement process and intended to "stop all abusive practices that unreasonably inflate federally related settlement costs to the public," United States v. Gannon, 684 F.2d 433, 438 (7th Cir.1981) (en banc). The statutory language "including, but not limited to" which precedes the enumerated services in Section 3(3) explicitly manifests Congress' intent not to limit the general phrase. Although no Courts have construed Section 8(a), the contemporaneous regulations which were promulgated by the Secretary of the Department of Housing and Urban Development HUD, pursuant to the authority of Section 19(a) of RESPA, 12 U.S.C. Section 2617(a), have interpreted Section 8(a). HUD has set forth facts and comments in 24 C.F.R. Part 3500, Appendix B, facts and comments that interpret Section 8(a). The second and seventh illustrations which appear in Appendix B, unequivocally interpret Section 8(a) as a prohibition against the referral of mortgage lending business for a fee. HUD's interpretation, while not binding on this Court, is entitled to deference. Finally, the statute itself demonstrates that HUD's interpretation is the correct one. Section 8(c) states, in part, that "nothing in this section shall be construed as prohibiting ... the payment of a fee ... by a lender to its duly appointed agent for services actually performed in the making of a loan ..." There would be no need for this provision to limit Section 8(a) if Congress did not intend to include mortgage lending within the definition of settlement services in Section 3(3).

III. REDUCED POINTS AND INTERIM FINANCING AS "THINGS OF VALUE"

Defendants contend that the extension of a bona fide loan does not constitute a "thing of value" within the meaning of Section 8(a). The...