K&L Gates Legal Insight: Safe Harbor Means Safe Harbor: Sixth Circuit Rejects Any Judicial Deference to HUD’s Sham Affiliated Business Guidelines

By: Phillip L. Schulman, Irene C. Freidel, David D. Christensen

Providing clarity in an area of law that had become increasingly muddled over the last two decades, the U.S. Court of Appeals for the Sixth Circuit has issued a decision that clarifies the scope of RESPA’s safe harbor for affiliated business arrangements (“ABA”). In Carter v. Welles-Bowen Realty, Inc., the court held that ABAs need only satisfy the three requirements set forth in the statute to fall within the statutory safe harbor; they do not need to also satisfy the so-called 10-factor “sham ABA” test addressed in HUD’s 1996 policy statement (“1996 Policy Statement”).

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