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An Act to Ban Affiliated Title Business

Banning affiliated business arrangements in title insurance will inject healthy competitive market forces into the title insurance marketplace and isolate important title and closing decision making processes from the influences of financially interested transaction service providers.

Banning affiliated business arrangements in title insurance will likely inject healthy competitive market forces into the title insurance marketplace and isolate important title and closing decision making processes from the influences of financially interested transaction service providers. In addition, the current 1-year statute of limitations restriction on enforcement actions against bad actors who engage in illegal kickback activities is inadequate to deter malfeasance. Extending this “look back” period to three years will likely have a beneficial impact on deterring illegal kickbacks.

We hope that the wisdom of this proposed Act will be perceived to be beneficial by both political parties. CAARE is available to provide insight, education, and research to help anyone who is considering this issue.

TRELORA exposes $27 billion commission price fixing scheme. Promptly shut down.

Buyers have an absolute right to know how much money is being offered to their agents before buyers are shown homes and possibly advised to buy homes with larger buyer agent payouts. Keeping buyers in the dark is costing them $30 billion annually.

Anonymous guest writer submission
Buying a house is treacherous enough without having equity stripped from your house before you even buy it. That is exactly what was happening until TRELORA, a Denver based brokerage, in the name of transparency, started publishing data to help home buyers understand and negotiate Realtor commissions. The local Multiple Listing Service (“MLS”), REColorado, which is owned by six local Realtor Associations shut them down under threat of fines and termination of MLS access. 
 
Buyers have an absolute right to know how much money is being offered to their agents before buyers are shown homes and possibly advised to buy homes with larger buyer agent pay outs. Buyer agent commission data has traditionally (and wrongly) been concealed from home buyers. To keep this vital data from home buyers is a betrayal and serves to fix buyer broker fees high sapping nearly 3% of the equity out of homes before buyers even move in. The real estate industry has so thoroughly confounded their method of payment that even the most savvy home buyers and sellers don’t know how to properly negotiate commissions. Most home buyers are unaware that they are even paying their buyer agent, let alone how much. TRELORA sought to open this information to consumers in an equitable way that made sense. 
 
In every other profession, clients pay for their own services. If that were true in real estate, home buyers would pay their agents, sellers would pay theirs and the price fixing schemes and predatory practices would all but vanish. Buyers would actually be able to represent themselves and keep the savings instead of listing brokers absconding with it. For decades, North American home buyers and sellers have paid more than twice as much in commission than they should. In other countries, like Britain, real estate commissions average 1.8% because buyers are not tricked into paying for buyer brokers like they are here. Here buyers are often told that buyer agents are free and buyers rarely negotiate those fees. Sellers unwittingly agree to pay listing brokers a bundled fee that includes the buyer brokers’ fees and entitle listing brokers to misappropriate the entire commission even if there are no buyer agents involved. Worse, some listing agents use MLSs (like REColorado) to actually offer secret “bonuses” to buyer agents whose clients buy certain properties. 
 
Failing to publish buyer agent compensation perpetuates the deception, keeps buyers in the dark, keeps brokerage fees artificially high and hurts the profession’s reputation. TRELORA published those fees so that buyers would know how much was being offered to their agents and give them the information they needed to negotiate those fees. Publishing that data serves a legitimate market purpose and hiding it does not. 
 
Buyer Agents owe special duties to buyers
Buyer agents owe special duties to their buyers called fiduciary duties – those duties are the highest standard of care under the law. Those special agent duties provide buyers with an absolute right to know and to consent to any compensation being offered to their agents, especially if that compensation comes from someone who could be considered antagonistic to the buyers’ interests – like sellers’ agents. Interfering with those fiduciary duties is considered so serious that it could even trigger criminal law. Colorado Criminal Code states that a person commits a class 6 felony if he offers any consideration to an agent or fiduciary in exchange for the agent knowingly violating a duty of fidelity (generally paraphrased – see 18-5-401 Commercial bribery and breach of duty to act disinterestedly). Fiduciary law, criminal law, anti-trust law and possibly even more severe criminal law (RICO) standards could be applicable to this situation if it is determined that concealing this information from buyers amounts to a concerted effort to price fix.  
 
Average savings for buyers of $7400.00
What would happen if buyer brokerage compensation were actually disclosed to buyers? Considering that over 80% of home buyers find the homes they buy on the internet without the assistance of a Realtor it is likely that buyers would find a way to claim some or all of this money for themselves. Some buyers would choose to not use a buyer broker at all and pocket the entire savings (average savings of $7400.00). Some buyers would use a buyer agent on a limited or hourly basis and have the broker collect and rebate the commission back to the buyer. Some buyers would utilize attorneys instead (ironically, often a far less expensive option). While it might not be so good for brokers, consumers might eventually see total commissions reduced to 1.8% like Britain and the elimination of some of the most predatory fiduciary practices that occur only in real estate (dual agency, pocket listings, open houses, data manipulation).
 
Perhaps the lesson here is for savvy sellers to refuse bundled fee agreements and offer the money directly to buyers instead of to listing brokers who may or may not pay it to buyer brokers. Savvy buyers might negotiate an hourly rate and have the buyer broker collect that 2.8 or 3% and rebate the difference back. Those same buyers would quickly learn to claim “bonuses” paid by the sellers’ brokers for themselves.  
 
Imagine how buyers might flock to properties that offered a 3% built in savings. Buyers could then choose whether or not to hire a buyer broker or do it themselves and add the 3% savings back into the equity of the house- nationally, that’s 27 billion dollars annually. Lenders would rejoice because the added equity in homes would decrease the likelihood of foreclosures. 

CFPB Enforcement Action against Wells Fargo and JPMorgan Chase

Congratulations to the CFPB for another enforcement action involving illegal kickbacks. This time the fines amounted to over 35 million dollars and involved two mortgage giants – Wells Fargo and JPMorgan Chase. The illegal conduct involved a title company providing “marketing services” to loan officers. Those services included providing loan officers with purchased consumer data and creating letters with the banks’ logos that the title company had printed, folded, stuffed and mailed.
 
 
The interesting thing about this enforcement action is that it comes on the heels of the Michigan enforcement action for similar conduct. While these actions are great for the consumer and may provide a deterrent for some, the fact is that the title company referral business has now consumed the marketplace. It is routine for title companies to tempt anyone in a position to refer title business. Realtors, loan officers and even attorneys often illegally exploit their client relationship in order to profit from a title company referral.
 
Most consumers do not know what a title company is, let alone what they do. That lack of knowledge makes consumers extremely vulnerable to kickback schemes as they rely upon the advice of their trusted Realtor, loan officer or attorney. A title company plays important roles in the real estate transaction process. They investigate and clear title and manage the closing process. They are the last chance to catch untoward conduct and prevent mortgage fraud. If the title company is financially tied to the Realtor, loan officer, attorney or builder, that puts those entities in an inappropriate position of control over parts of the transaction for which they have no business controlling. No one sitting at the closing table should have any relationship to the title company.
 
It is time that attorneys and regulators began to look at their state licensing and common law when it comes to title company referrals. State laws typically provide far more consumer protections than federal law in the form of longer statutes of limitations, higher standards of conduct and far more severe penalties.
 
The best advice we can provide to consumers is to get involved in the title company selection process. Do not let your Realtor, loan officer, attorney or builder ever steer you towards a conflicted title firm. If you are going to rely on the advice of your professional when it comes to the title company selection, insist that they avoid affiliated or financially tied title firms and that they engage in thorough due diligence and provide you with the information that they have found.

 

The Mortgage Choice Act Erodes Consumer Choice

HR3211 is a Bill deceptively entitled the Mortgage Choice Act. It should be called the Mortgage Elimination of Choice Act. It seeks to provide further advantages to affiliated business arrangements, something that hurts consumers and small business.

This Bill is opposed by the National Association of Consumer Advocates, the Consumer Federation of America, The Leadership Conference on Civil and Human Rights, Consumers Union, National Council of LaRaza, Americans for Financial Reform, the Center for Responsible Lending, Consumer Federation of America and Consumer Advocates in American Real Estate.

Affiliated business arrangements used to be called Controlled Business Arrangements, but the affiliated business lobby got the name changed because of the negative connotations. The name may have been changed, but the problems of course still exist. Affiliated business arrangements in residential real estate serve a few important anti-consumer purposes:

  • They eliminate consumer choice by allowing trusted real estate providers to steer their clients into their own over-priced title, mortgage and other firms;
  • They eliminate the impartiality of important decision makers like title companies by allowing parties at the closing table to influence the checks and balances;
  • They eliminate comparative shopping by allowing fiduciaries in the transaction to actually steer clients into their over price and biased in-house service providers. Eliminate competition in this manner and you cause prices to artificially inflate, service standards to drop and products to deteriorate.

If you are interested in calling your Congressman and asking them to stop HR3211, here is how you can find your Congressman’s contact information:

To find your representative in the House, please click here.
  
To find your representative in the Senate, please click here.    

 

 

Consumer Alert – Los Angeles consumers

Consumer Alert – Los Angeles Realtors are delaying distribution of sellers’ listing data to online real estate sites.

A Realtor controlled MLS in the Los Angeles area is intentionally delaying data feeds of property listing data to the top buyer frequented websites in the United States. Based on the information that we have reviewed, real estate agents and brokers, through their Realtor Association and MLS have acted in concert to thwart the successful business models of www.Zillow.com, www.Trulia.com and www.Realtor.com by tainting the data they send to them with an intentional 48 hour delay. This practice is harmful to consumers and competition.

InmanNews released a story on this in which we were quoted (click here to read that story).

We have a really hard time with this policy for a number of reasons. First, we really like the business models of www.zillow.com (which takes For Sale By Owner listings) and to a lesser degree Trulia.com and Realtor.com (which do not) because they are consumer friendly and help sell homes. The crazy thing is that each of these online businesses actually help Realtors do their job better (many Realtors love these free online services) and they do it for free. Realtors are not out any money if Zillow finds a buyer because the Realtor still gets paid the listing portion of the commission.

So why would some Realtors not like them?   Get ready for this – because many Realtors and brokers want to collect a double fee even if it harms their own clients.  It is not good enough that Zillow gets the house sold, some Realtors and brokers (mostly the mega brokers who control the local Realtor Associations) believe that they are entitled to interfere with their clients’ interests in selling their home in order to improve the chances of collecting both the listing commission and the commission offered to the buyer’s broker (a double fee).

Realtors are conservators of their clients’ data and must serve their clients’ best interest above all others (especially their own). Realtors have exclusive access to client data only because of a state licensing privilege. We believe that violating those client and state duties to collect a double fee may constitute a fraud on both the consumer and the state licensing board. To do so in concert with the entire Realtor Association may be a form of price fixing and anti-competitive activity that would hopefully interest the U.S. Department of Justice, Antitrust Division.

When a Realtor undertakes to sell a client’s home, they pledge to sell that home for the highest price and in the shortest time possible. They do not pledge to manipulate the marketing of their client’s home  in order to pocket a double fee. When the broker collects both fees they also strip both the buyer and seller of their right to the broker’s representation in negotiations (click here to learn more about problems with dual agency).

Unfortunately, brokerage firms and Realtor Associations around the country have engaged in complex manipulations to fix or increase the chances of collecting double fees for years. The Los Angeles Realtors have taken this to a new level by involving the entire Realtor Association to act in concert to undermine online real estate sites. This does not just hurt Zillow, Trulia and Realtor.com, it harms the quality of the data that consumers rely upon to buy homes. Somehow we do not believe that the California Department of Consumer Affairs, Bureau of Real Estate intended brokers to use their state privileges to intentionally taint property data.

For years, Realtors and MLSs all over the country have engaged in another similar anti-consumer and possibly illegal practice of conditioning access to listing data to anti-consumer requirements. For example, most MLSs will only allow access to “their” data (its the sellers’ data) if the online sites agree to steer buyers back to the listing broker of the property. What consumers are not told is that practice improves the chances of a double fee for brokers and the forfeiture of broker representation for both the buyer and seller. That means do it yourself home buyers who click on the listing broker do not save money, but instead forfeit their right to representation without so much as a “disclosure.”  We believe this practice is also a misappropriation of state licensing authority.

Realtors have the opportunity to list in real time their clients’ listings for free on a multitude of websites with very little effort. These sites often have far more technologically advanced software than Realtor Associations and provide a real service to Realtors and sellers. We recommend that all consumers demand that their brokers immediately list their properties (that means no delay) on Zillow, Trulia, Realtor.com and the other major online free real estate portals so that they get great national and local exposure of their properties. 

Here is a video from the Today Show ON HOW NOT TO MARKET YOUR PROPERTY.

Advice for real estate consumers who are victims of this practice:

1. Contact us and tell us your story (especially if you would like to be a plaintiff in a class action lawsuit)

2. File a licensing complaint with California Department of Consumer Affairs (click here to access their webpage)

3. Add language to your listing contract requiring to list your property on Zillow and the other online sites immediately and to provide you with proof that was done.

4. Use this as a negotiating point to negotiate a lower commission.

 

Minnesota Consumer Alert – Edina Realty

Consumer Alert – We found the following problems with Edina Realty’s listing practices contained in a 2011 listing contract provided to us (we appreciate a newer copy if you would like to send us one). This list is not meant to be comprehensive.

1.  Anti-consumer Marketing Practices. Edina Realty excluded most of their clients’ listings from Zillow.com, Trulia and Realtor.com (the top buyer frequented websites in the country) for three years. We believe they may still be doing this on many of their properties. This practice increases the chance that Edina Realty will collect a double fee while likely sacrificing their clients’ interests in selling their homes for the highest price and in the shortest time possible. Click here to watch a short video from the Today Show on How Not To Market Your Home Online.

Edina Realty includes the following boilerplate language in the listing contract we have:

2. Pocket Listings. This is the practice of intentionally withholding listings from all marketing websites, including the MLS. Agents may advise their sellers that it is a good idea to test market the property just within Edina Realty for a few weeks in order to gain information about the price and how well it shows. They may provide other reasons. However, it is rarely a good idea to intentionally limit the market exposure of a property – especially the most valuable asset a client is likely to own. We believe Edina Realty routinely engages in the practice of pocket listings and we highly recommend that you avoid this practice. Here is a short article about pocket listings: Pocket Listings.

3. Closing Services Notice is incomplete and self-serving (in our opinion). Title companies investigate and examine title and make extremely important closing decisions. They provide consumers with an incredibly important safeguard service. Edina Realty wants you to use their title company and persuades many people to pick their title company by causing them inconvenience if they do not. Instead of providing their clients with a list of impartial title firms and their fees, Edina Realty provides their clients with a choice that puts the onus on the client to go figure out how to compare title firms: pick Edina Title or go find your own title companies the only two choices. Does Edina Title rubber stamp deals so that Edina Realty can collect their commission? Is Edina Title looking the other way and saddling their clients with title defects? Are they capturing their clients and charging them more than other title companies? We do not know, but the conflict exists and we suggest that you do an internet search to compare Minnesota title companies and find one that is independent of affiliations. 

4.  Edina Realty Home Warranties are being sold to clients in the listing contract. Home warranty products are often cited as generating more consumer complaints than any other service product on Angies List and other respected resources. Yet Edina Realty pushes them in its listing contract because they collect a portion of the fee. Here are links to two stories in Angies List about home warranties: Why Home Warranties are No Guarantee and Home Warranties.

5.  Edina Realty claims a copyright on their clients’ listing data. By taking a copyright on your data this gives Edina Realty the right to sue third party websites that include your listing information on their websites. We believe this is wrong and that Edina Realty should be doing everything they can to make sure your listing data is widely marketed regardless if they are to get a double commission. Here is an older clause that we saw in their contract. 

6.  A mandatory Arbitration Clause designed to eliminate class action lawsuits and binds clients to arbitration even in claims of fraud. Extremely harmful to consumers:

7. Junk Fees.  Many real estate brokerages started charging junk fees on top of their enormous real estate commissions (we recommend to not agree to pay these). In comparison these fees don’t seem like much. But an extra $400 or more is a lot of money and Edina Realty charges both their buyer and seller clients approximately this much.

 

Thank you Minnesota State Bar Association for making your Forms Free to the Public

The Minnesota State Bar Association just made their purchase agreement forms available free to the public.

Minnesota Standard Residential Purchase Agreement Forms Now Available to the Public (click here to access)– The Minnesota State Bar Association (“MSBA”) just made their Minnesota purchase agreement forms available free to the public. Unlike the local Minnesota Realtor Association forms which are cluttered with self-serving provisions, the MSBA forms are well balanced and thorough. We recommend that you use an attorney to draft it though (it is your house at stake if you do it wrong).

The Minnesota Association of Realtors purchase agreement forms are exclusively available to Realtors and are typically the only form Minnesota consumers ever see (and they are not available to the public). For several decades there has existed a better set of purchase agreement forms that offer better protections to consumers. The Minnesota State Bar Association just made those forms available free to the Minnesota public. Next time you are buying or selling a house, insist that these forms be used. It is likely illegal and a violation of licensing laws for a Realtor to refuse to accept an offer on these forms.