Wooten v. Quicken Loans, Inc.

• Decision Date: 23 November 2010
• Docket Number: No. 08-11245,08-11245
• Citation: 626 F.3d 1187
• Parties: Keidrick C. WOOTEN, Mitzi D. Wooten, Billy R. Buckhaults, Cheryl A. Buckhaults, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. QUICKEN LOANS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

626 F.3d 1187

Keidrick C. WOOTEN, Mitzi D. Wooten, Billy R. Buckhaults, Cheryl A. Buckhaults, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.QUICKEN LOANS, INC., Defendant-Appellee.

No. 08-11245.

United States Court of Appeals,Eleventh Circuit.

Nov. 23, 2010.

C. Nelson Gill, George W. Walker, III, Copeland, Franco, Screws & Gill, Montgomery, AL, for Plaintiffs-Appellants.

Thomas M. Hefferon, Goodwin, Proctor, LLP, Washington, DC, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Alabama.

Before TJOFLAT and EDMONDSON, Circuit Judges, and RYSKAMP,^* District Judge.

TJOFLAT, Circuit Judge:

Section 8(b) of the Real Estate Settlement Procedures Act ("RESPA") provides:

(b) Splitting charges. No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b). The principal question this appeal presents is whether, in connection with a residential mortgage loan, charging a loan discount payment—otherwise known as "points" or "discount points"—to provide a specific, below-market interest rate constitutes the "rendering of a real estate settlement service" within the meaning of § 2607(b). The district court, dismissing the appellant borrowers' complaint for failure to state a violation of § 2607(b), held that the borrowers' payment of such points was not for the "rendering of a real estate settlement service." We agree, and therefore affirm the court's ruling.

I.

This is a class action brought against Quicken Loans, Inc. ("Quicken") by two sets of borrowers: Keidrick C. Wooten and his wife Mitzi D. Wooten, and Billy R. Buckhaults and his wife Cheryl A. Buckhaults, his wife.¹ These plaintiffs purportedly represent everyone who obtained a residential mortgage loan from Quicken and was charged points, but did not receive the specific, below-market interest rate Quicken promised. The Wootens' and Buckhaults' transactions differed; thus, we set them out separately.

Before doing so, however, we should point out that plaintiffs' counsel, in drafting the complaint in this case, failed to attach to the complaint the notes and mortgages the Wootens and Buckhaults executed. Defense counsel attached the notes to Quicken's motion to dismiss the complaint, and the district court, over plaintiffs' objection, made the instruments part of the complaint,² relying on them in granting Quicken's motion. The complaint also alleges that Quicken furnished the respective borrowers the mortgage-closing statement required by the U.S. Department of Housing and Urban Development, "Settlement Statement (HUD-1)" ("HUD-1"), and that the HUD-1, on line 802, indicated that Quicken was charging the borrowers a "Loan Discount" percentage,or points, for the specific interest rate stated in the mortgage note. As was the case with respect to the notes and mortgages, the HUD-1s presented to the borrowers were not part of the complaint. Nor were they attached to Quicken's motion to dismiss, or referred to by the district court in its dispositive order. To the end that the facts surrounding the loan closings may be presented in full, we consider as part of the complaint both the HUD-1s the borrowers received and, as the district court did, the notes they executed.³

A.

On July 18, 2006, the Wootens entered into a residential mortgage transaction with Quicken. They executed an "Adjustable Rate Note" for $132,250, payable in 30 years, at an "initial fixed interest rate" of 5.875% per annum.⁴ "Quicken charged the Wootens a loan discount fee of $5,951.00, an amount equal to 4.5% of their loan amount. The Wootens did not negotiate for a buy-down of the interest rate nor did they receive a lower interest rate in return for paying points." Compl. ¶ 8. Nonetheless, as indicated on line 802 of the HUD-1 that Quicken gave them at closing,⁵ id. ¶ 16, they paid a "Loan Discount" of 4.5% for the interest rate stated in their mortgage note, 5.875%.⁶

B.

On July 3, 2006, the Buckhaults entered into a residential mortgage transaction with Quicken. The Buckhaults executed a "Note" for $140,000, payable in 15 years, at a fixed interest rate of 6.500% per annum.⁷ "Quicken charged the Buckhaults a loan discount fee of $2,100.00, an amount equal to 1.5% of their loan amount. The Buckhaults did not negotiate for a buy-down of the interest rate nor did they receive a lower interest rate in return for paying points." Id. ¶ 9. Nonetheless, as indicated on line 802 of the HUD-1 that Quicken gave them at closing, id. ¶ 16, they paid points, a "Loan Discount" of 1.5% for the interest rate stated in their mortgage note, 6.500%.⁸

The Buckhaults and Quicken entered into a second residential mortgage transaction on April 6, 2007. Id. ¶ 10. The Buckhaults executed an "Interest First Note" for $142,800, payable in 30 years, at a fixed interest rate of 6.125% per annum.⁹ "This time Quicken charged the Buckhaults a loan discount fee of $1,963.50, an amount equal to 1.375% of their loan amount. The Buckhaults did not negotiate for a buy-down of the interest rate nor did they receive a lower interest rate in return for paying points." Id. Nonetheless, as indicated on line 802 of the HUD-1 that Quicken gave them at closing, id. ¶ 16, they paid a "Loan Discount" of 1.375% for the interest rate stated in their mortgage note, 6.125%.¹⁰

II.

The Wootens and Buckhaults instituted this class action on July 2, 2007. Their complaint contained two counts, both founded on the facts recited in parts I.A and I.B. Count I, brought under § 8(b) of RESPA, 12 U.S.C. § 2607(b) and 24 C.F.R. § 3500.14(c), alleged that Quicken charged the Wootens and Buckhaults a " 'Loan Discount' fee for which no interest rate discount was given or bargained for ...." Id. ¶ 1. Specifically,

The section 802 charges listed on the HUD-1s were imposed for services that were not bona fide, not rendered, not paid or for nominal, unreasonable or duplicative services for which no fees were earned and for which no fees should have been imposed, all in violation of RESPA at 12 U.S.C. § 2607, and RESPA's implementing regulations, Regulation X, at 24 C.F.R. § 3500.14. ¹¹

Id. ¶ 33. Stripped to its essentials, Count I alleges that the agreements the Wootens and Buckhaults made with Quicken did not call for a discounted interest rate and thus did not require the payment of a loan discount, or points. They nonetheless paid the points, receiving nothing in return.

Count II, claims for breach of contract,¹² alleged as follows: "Quicken and Plaintiffs entered into ... contract[s] and ... Quicken [ ] ... charg[ed] Plaintiffs for points[but did] not actually provid [e] a[n] interest rate discount or alternatively ... charge[d] for points when no agreement was made for points." Id. ¶ 19.c. Quicken "breached [the] contract[s] by charging Plaintiffs a loan discount fee without actually providing a lower interest rate or other reasonable service in return." Id. ¶ 38. The gist of Count II is that the Wootens and Buckhaults paid Quicken for a discounted interest rate but did not receive one, or, alternatively, Quicken charged the Wootens and Buckhaults points they were not supposed to pay.

Having laid out the facts surrounding the mortgage loan transactions as described in the complaint, we turn now, in part III, to the sufficiency of Count I to state a case for relief under § 8(b) of RESPA and Regulation X. In part IV, we consider whether Count II states a case for breach of contract.

III.

The district court concluded that points are not a "settlement service," within the meaning of § 8(b) of RESPA, but a sum paid to provide an interest rate lower than the interest rate the market required.¹³ The court thus treated the points as part of the interest Quicken charged for the loans.

For a mortgage lender's charging of points to violate § 8(b), the points must be charged or received "for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan." Accordingly, in reviewing the district court's dismissal of Count I, we begin with the question of whether points represent a charge for rendering a "settlement service." If they do not, we proceed to the question of whether the points Quicken charged constituted payment for settlement services rather than for providing the borrowers with below-market interest rates.

A.

We begin our analysis with the text of RESPA, noting that we are necessarily limited in our interpretation of "settlement service" by the statutory definition and the regulations interpreting it. See, e.g., Schwarz v. City of Treasure Island, 544 F.3d 1201, 1214 (11th Cir.2008) (contemplating the meaning of "residence" in the context of defining "dwelling," beginning with the definitions provided by the applicable statute and HUD regulations and, finding nothing applicable, proceeding to the common or ordinary meaning of the term). RESPA defines a "settlement service" as "any service provided in connection with a real estate settlement." 12 U.S.C. § 2602(3). Examples of qualifying services include:

(1) Origination of a federally related mortgage loan (including, but not limited to, the taking of loan applications, loan processing, and the underwriting and funding of such loans); (2) Rendering of services by a mortgage broker (including counseling, taking of applications,obtaining verifications and appraisals, and other loan processing and origination services, and communicating with the borrower and lender); (3) Provision of any services related to the origination, processing or funding of a federally related mortgage loan; (4) Provision of title services, including title searches, title examinations, abstract preparation, insurability determinations, and the issuance of title

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