The Consumer Financial Protection Bureau (CFPB) filed a lawsuit yesterday against a Kentucky law firm that it believes paid illegal kickbacks for mortgage referrals.
The CFPB alleges that Louisville law firm Borders & Borders, PLC, and its principals violated the Real Estate Settlement Procedures Act (RESPA) by operating a network of affiliated companies to pay kickbacks for referrals of mortgage settlement business.
RESPA prohibits giving and receiving kickbacks for referrals of settlement service business involving federally related mortgages.
CFPB’s complaint filed against Borders & Borders alleges that the law firm operated nine joint ventures with the owners and managers of local real estate and mortgage broker companies, allegedly using the joint ownership to disguise illegal kickbacks as legitimate profit sharing.
The complaint also alleges that when a local real estate or mortgage broker company with a preexisting arrangement referred a homebuyer to Borders & Borders for closing or other settlement services, the Cirignani Heller & Harman LLP attorneys would arrange for the title insurance to be issued by the corresponding joint venture.
The profits from the joint venture would then be split between its owners, which were the Borders principals and the referring real estate or mortgage broker.
The nine joint ventures did not have their own office space, email addresses or phone numbers, and all nine companies shared a single independent contractor who was also an employee of Borders & Borders, according to the CFPB complaint.
“Each company only issued title insurance policies for homebuyers that had been referred to and by Borders & Borders, and did no advertising to attract other business,” said the CFPB in a statement. “The companies performed no substantive title work, all of which was instead performed by the staff at Borders & Borders.”
Additionally, the CFPB believes the entire arrangement served no significant business purpose beyond acting as a conduit for kickbacks in exchange for referrals.
The CFPB’s lawsuit seeks disgorgement of all “ill-gotten” proceeds from the referral arrangement, as well as an injunction to stop the defendants from further violating RESPA.
“Today’s action sends a clear message that companies cannot design business structures to hide illegal kickbacks,” said CFPB Director Richard Cordray. “The CFPB will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest business.”
Written by Jason Oliva