Claim That Lender Violated UCL In Disclosures On HUD-1 Settlement Statement Stated A Claim And Was Not Preempted
Question: Does a lender violate the unfair competition law by disclosing, on a HUD-1 Settlement Statement, the costs it charged home loan borrowers, as opposed to the actual costs it incurred?
Answer: Yes, according to the Court of Appeal in McKell v. Washington Mutual, Inc., 06 C.D.O.S. 8836 (Sept. 18, 2006).
In this case, a lender disclosed on a HUD-1 Settlement Statement the costs it charged home loan borrowers – not the costs it actually incurred, which were much less – for underwriting, tax services, and wire transfer fees in connection with home loans. The plaintiffs claimed this practice violated the unfair competition law and the Consumer Legal Remedies Act, as well as giving rise to liability for breach of contract and conversion. The trial court sustained the lender's demurrer on the grounds that the HUD-1 Statements accurately reflected what the lender actually charged customers and did not constitute an implied agreement to charge only pass-through costs.
The Court of Appeal reversed with regard to the unfair business practices claim, finding that it was not barred under the doctrine of judicial abstention and was not preempted: "In summary, plaintiffs have stated a cause of action under the UCL based on fraudulent and unfair business practices. They also have stated a UCL cause of action for unlawful business practice based on violation of [the Real Estate Settlement Procedures Act (RESPA) or the Home Owners' Loan Act]." According to the court, a lender violates RESPA if it marks up the cost of another providers services without providing additional settlement services.
Justice Vogel issued a strong dissent, finding no basis for the majority's conclusion that the lender led borrowers to believe it was charging them for the costs it actually paid, concluding that "this entire action is preempted by federal law," and reasoning that the lender did not violate RESPA by marking up the cost of the subject services.
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