CAARE’s Work on this Project – a Chronology
Since the Minnesota Department of Commerce (“DOC”) initially issued their press release, CAARE has gathered many facts on this matter. We have done research, met with the DOC, met with MNAR, presented before a roundtable of MNAR and several other trade associations, convinced the Minnesota State Bar Association not to change their purchase agreement, and a lot more. We even went to Washington DC and got the initial cooperation of HUD, only to have the DOC negate our work by refusing to cooperate with HUD. Follows is a chronology of some of the things that we have done.
On September 28, 2010 (approximately one month after the DOC’s press release), CAARE sent a letter to DOC’s Paul Hanson (we copied Glenn Wilson, the Commissioner of Commerce at the time). We explained the situation and the error, cited the law and explained the ramifications of the mistake (click here to see a copy of that letter). We asked them to retract their press release and issue instructions to the Minnesota Association of Realtors to delay the implementation of their new purchase agreement. We received no response until Commissioner Glen Wilson left office at the end of the year. Paul Hanson of the DOC failed to respond to every communication we sent to him. However, we were able to meet with Commissioner Rothman twice after he took office (the latter time with Mr. Hanson).
On September 22nd, we attended a continuing education class approved by the DOC and presented by MNAR. The speaker was the Chair of the MNAR Forms Committee, Wayne Gilbert, who is also an attorney and a real estate broker. He is an agent with Burnet Realty and it was a title executive from his sister company Burnet Title who first suggested the change to the purchase agreement. Mr. Gilbert told the class of approximately 200 licensees that the change to the purchase agreement was a HUD requirement. His course materials incorrectly stated that RESPA now required that the buyer pay for seller’s fees.
On September 23rd we sent an e-mail to Mr. Gilbert explaining that we questioned whether HUD could require Minnesota buyers to pay the sellers’ abstracting fee. We attached a copy of the RESPA exceptions. We sent several follow-up e-mails and received no response.
It took us until December 3rd to get a communication from HUD directly refuting MNAR’s statement that they changed the purchase agreement because it was a HUD requirement. The e-mail was widely circulated throughout the Minnesota real estate industry. The e-mail was from the same HUD official with whom the MNAR representatives had been talking (click here to see that e-mail). HUD’s e-mail stated that “RESPA does not require the borrower to pay for the abstract” and “Nothing in RESPA requires the modification of a purchase agreement to charge the purchaser/borrower for the abstract.”
We immediately sent a copy of HUD’s e-mail to Mr. Gilbert and explained again how the new purchase agreement was harming homebuyers. We asked that MNAR pull their purchase agreement from the marketplace. Mr. Gilbert finally responded but only to tell us that they would take our comments into consideration at the next Forms Committee.
On December 27th we were contacted by the CEO of MNAR, Chris Galler, who wanted to meet to discuss our issues. At our January 3rd, 2011 meeting we gave a powerpoint presentation outlining all the issues. Mr. Galler indicated that he was aware that HUD did not mandate the change and promised that he would look into having the class materials revised. We took the class again in May, 2011 and the instructor was still stating that the purchase agreement change had been mandated by HUD. MNAR was still misinforming their Realtor members.
On January 7th Mr. Galler invited us to their next Forms Committee meeting to discuss our issues. He proposed that at this meeting they would also invite 3 other real estate related trade associations and have HUD attend via conference call. He indicated that they were open to the idea of a change to the purchase agreement and felt it was important to work with the other associations towards a resolution.
On February 10th we received an e-mail from Mr. Galler that they were meeting on February 25th with all the industry representatives and indicated that we would not “need to be in attendance.” He told us later that a Burnet title representative objected to us being there and that she would not attend if we were there. On February 20th we sent an e-mail to Mr. Galler that we took offense to being excluded from the meeting on the 25th and copied the media and governmental officials. This resulted in an invitation to present our issues at the meeting and take questions. After our presentation, Mr. Galler asked us to leave and escorted us to the door and the meeting went on without us. MNAR elected not to change their purchase agreement.
On April 5, 2011, we sent a letter to Barton Shapiro of HUD asking for an opinion letter regarding application of the RESPA FAQ’s to the Minnesota’s situation (click here for a copy of that letter). On April 11th, we visited senior HUD officials, Mr. Shapiro and Mary Jo Sullivan of HUD in Washington D.C. At that meeting we explained to Mr. Shapiro how abstracting has always been a seller’s fee in Minnesota. He told us that if that was the case, then it would fall under the RESPA exception and not have to be disclosed as a buyer’s fee. We asked for him to put that in writing. Mr. Shapiro seemed willing to help and we thought that the problem might be resolved. However, Mr. Shapiro then indicated that he knew Mr. Hanson and that out of professional courtesy he would discuss the situation with him. It was at this point that Mr. Shapiro became unresponsive to our requests.
On April 15th we sent an e-mail to Mr. Shapiro and Ms. Sullivan detailing the contents of the letter we would need from them restating what he had said to me in the meeting (see copy of that e-mail here). We followed up on April 21, 25, 27 looking for a response. On May 6th we drafted a proposed joint press release for the DOC and HUD in hopes of streamlining this process and e-mailed it to both of them (see that e-mail here). It was at this point that Mr. Shapiro responded and indicated that, “this Department and the Minnesota Department of Commerce will discuss this issue directly and consider any next steps that may be taken. We will then get back to you.”
It is important to note that Mr. Shapiro agreed that seller’s fees do not need to be disclosed as buyer’s fees. He had cited the RESPA exception for this.
On May 20th we followed up with Mr. Shapiro again. This time it became clear that Mr. Shapiro was talking about this issue with someone from Minnesota who was providing him with inaccurate information. He now began to question if sellers really paid for abstracting in Minnesota. On May 20th he wrote, “I have been looking into this and it is unconfirmed that sellers always pay for abstracting, especially in a heavy short sale market.”
Over the next few days we made contact with the Real Property Law Section of the Minnesota Bar Association. One of the foremost residential real estate attorneys in the state was willing to go on record with HUD to explain that even in short sales it has always been the practice that sellers pay for abstracting. We produced James M. Neilson to speak to HUD (here is our e-mail with his bio attached). In addition, we provided HUD with copies of HUD-1 Settlement Statements (with personal information redacted) showing that sellers paid for abstracting in short sales. We received no response.
On June 10th we sent an e-mail to HUD and the DOC asking for an update. We explained how buyers were being harmed and how the facts seemed to indicate the possibility of a price fixing scheme. We explained how MNAR was continuing to misinform their licensees that the new purchase agreement was mandated by HUD. The response we received was from Mr. Hanson (the first we had heard from him in many months) and copied to the HUD officials, “Would you identify these Minnesotans that have lost this money. Would appreciate a complete list and presumably most are not your title company’s customers. We have no complaints about this other than from you. Thanks and I will look for your data file on this. Off today but in Monday. Paul.” He copied the people at HUD, but did not copy Commissioner Rothman. The CAARE board member to whom Mr. Hanson was responding has an ownership interest in a title company and has been compelled by state law to collect these higher fees charged in the new MNAR purchase agreement. That board member has been retaliated against in the past for exposing problems in the industry and had a lot to lose by exposing this problem to Mr. Hanson.
Mr. Hanson’s position was untenable since we knew that it was the DOC’s job to investigate situations like we had described especially if there were no complainants. In fact, some of the most egregious problems occur without the knowledge of consumers. If we were to follow Mr. Hanson’s logic, the DOC no longer investigates secret price fixing schemes, but only those that are properly disclosed.
It had become clear that Mr. Hanson had convinced Mr. Shapiro that Minnesota did not care about this issue. It was disheartening to see such an obvious display of cronyism by Mr. Shapiro. To this day we have no idea why Mr. Hanson would take such an anti-consumer stance on such an important matter that directly affected low income and first time home buyers. But we do know that he interfered with our work to correct this problem and because of him, Minnesota homebuyers have paid an extra 45 million dollars in title fees over the last year and a half.
On November 28th, 2011 we received another delinquent “response” to a Data Practices Request from the DOC. Our e-mail requests went unanswered so we resorted to this statutory procedure of gathering data. We were following up on promises that had been made by Mr. Hanson in our meeting with him and the Commissioner and we wanted to find out the facts surrounding the origins of the press release. Here is what they told us. The DOC had no records of any kind pertaining to their press release. They had no e-mails, calendar appointments or any other relevant media. They did not know who drafted the press release. They had no information of any due diligence that was done in regards to their press release including whether research was done into the RESPA exceptions. The DOC did not investigate our complaint filed with Paul Hanson in regards to MNAR teaching false information to their licensees. Paul Hanson has no information regarding who the title executives were with whom he consulted regarding their press release or what was discussed.