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The grammatical function of the word “and” plays a leading role in a disagreement among the circuits over the Real Estate Settlement Procedures Act. But lurking in the background is a potentially much more far-reaching dispute about the degree of deference that is owed to administrative agency interpretations of federal statute. On Sept. 10, the 2d U.S. Circuit Court of Appeals allowed a group of homeowners to go forward with a suit against Wells Fargo Home Mortgage Inc. and related companies that handled their closings. Kruse v. Wells Fargo Home Mortgage Inc., No. 03-7665. The homeowners allege that the Wells Fargo companies contracted with third parties to perform settlement services like flood certification and document preparation, and then charged the homeowners at a significant markup. They claim that the markup violates � 8(b) of the act (codified at 12 U.S.C. 2607(b)): “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.” Giving and receiving The first circuits to rule on similar lawsuits�the 4th, 7th and 8th�held that � 8(b) could not be read as outlawing markups. To those courts, the phrase “[n]o person shall give and no person shall accept” meant that there had to be two components�an improper giving and an improper receiving�to make up a single violation. In other words, they concluded that the provision was aimed solely at kickbacks (such as might occur if a settlement company and a third-party vendor agreed to split fees). The first circuit to break from that reading, the 11th, said last October that it reflects a grammatical error. “In the English language, the word ‘and’ is ‘used to connect words, phrases or clauses that have the same grammatical function,’ ” the court lectured, quoting the American Heritage Dictionary. Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979. Thus, under the 11th Circuit’s reading, a settlement company could be liable for accepting an improper markup even if the homeowner was blameless in giving it. The 2d Circuit in Kruse reached the same result as the 11th, but by a slightly different route. It deemed the statute ambiguous, and thus deferred to a 2002 “policy statement” by the U.S. Department of Housing and Urban Development (HUD) that said that markups violate � 8(b). Whether HUD’s policy statement deserves such deference is itself the source of division among the circuits. The case against deference was put most strongly by the 7th Circuit in 2002′s Krzalic v. Republic Title Co., 314 F.3d 875. Noting that HUD issued the policy statement in the wake of an earlier adverse 7th Circuit ruling, Judge Richard Posner wrote, “One fine day the policy statement simply appeared in the Federal Register. No public process preceded it.” He also wrote: “If an agency is to assume the judicial prerogative of statutory interpretation . . . it must use, not necessarily formal adjudicative procedures . . . but, still, something more formal, more deliberative, than a simple announcement.” Both Posner and concurring Judge Frank H. Easterbrook also suggested that other circuits had not given due attention to Supreme Court precedent limiting deference with respect to statutes enforced by private lawsuits. Young’s e-mail is [email protected].

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