Fourth Circuit Ends Homebuyers’ Class Action Against Mortgage Lender

Did a legislative mistake or printer’s error save Wells Fargo from a suit alleging that it took part in a mortgage referral kickback scheme Intentional or accidental, the statutory definition of “mortgage broker” played a pivotal role.

Homebuyers Bradley and Stacey Petry borrowed $220,000 from Prosperity Mortgage Company to buy their Baltimore house. As part of the transaction, Prosperity charged the couple lending fees. A few days after closing, Prosperity sold the mortgage to Wells Fargo. The plaintiffs claimed that Prosperity, though the named lender, was engaged in a scheme to procure mortgages for Wells Fargo and that the “lending” fees Prosperity collected were actually a “finder’s fee” in disguise.

The Maryland Finders Fee Act prohibits a mortgage broker from charging a finder’s fee in transactions “in which the mortgage broker . . . is the lender.” The purpose of the provision is to prevent a lender from charging redundant and excessive fees for each of its roles. The class action suit contended that, because Prosperity was acting as mortgage broker as well as lender, its fees were illegal.

The Fourth Circuit Court of Appeals rejected their argument based on Maryland’s definition of “mortgage broker”someone who assists in the obtaining of a mortgage but who is “not named as a lender.” Since Prosperity was named as the lender in loan documents, said the Circuit Court, it could not be considered a “mortgage broker.”

The plaintiffs had relied on the Finders Fee Act’s language, which refers to mortgage brokers who are also lenders. Plaintiffs’ counsel argued that Maryland’s definition of a mortgage broker as someone who is “not named as a lender” is “either the result of legislative error, or a mistake by the Michie Company, which codifies the Maryland statutes. The Circuit Court disagreed and said the two provisions could be reconciled. Whether the definition of “mortgage broker” was a typo or a subtle nuance, it prevented Prosperity from being defined as one.

Real estate is often one of the most important assets owned by a business or an individual, and real estate purchases, sales, and financing, are inherently complex. Longman & Van Grack’s attorneys have a thorough knowledge of real estate litigation and contract law, as well as extensive experience with civil litigation and court rules. If you would like to discuss a real estate transaction or dispute, call (301) 291-5027 to schedule a consultation.