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NAILTA Study – No In-house Title

The National Association of Independent Land Title Agents (NAILTA)  has just released a consumer survey that sheds light on what is important to consumers in selecting a title company.  This survey Executive Summary2013 is extremely important because it is the first of its kind to ask important questions that are designed to provide accurate results. Prior industry-sponsored surveys have misled consumers and Congressmen about the dangers of affiliating these safeguard services (like title firms that provide title insurance and closing services) with industries dependent upon the transaction closing in order to get paid. “One Stop Shopping” is the real estate industry’s term employed to disguise these conflictive and dangerous arrangements. “One Stop Shopping” does not even accurately describe a benefit that a consumer will receive. Instead, the term describes the real estate firm’s financial benefit that comes with being able to capture their clients’ title business, control the outcome of the title examination and overcharge for those services. Current laws and regulatory efforts continue to support bad real estate practices that could easily have played a role in the mortgage foreclosure crisis.

What CAARE likes about this survey is that it was done by an organization whose membership is comprised of title firms that choose to avoid the conflicts of interests (and profits) that come with “one-stop shopping.” We hope that this survey leads to more research into the role these arrangements played in the financial crisis, the elimination of laws that legalize these types of inappropriate relationships and a better education among consumers, lenders and other industry participants as to the dangers this business model presents to the financial integrity of real estate transactions.

Some important findings:

  • 93% of respondents said it was important that their title agent be a neutral third party in determining and disclosing what matters may affect their land title, including adverse liens or other interests that may restrict their use and enjoyment of their property.
  • Over 62% of respondents said that title insurance agency could not remain objective, as it pertains to title insurance matters if they shared ownership with a referral source.

Sampling of News and Blog Articles in Which CAARE was quoted (new section)

1. Should you buy a home through a seller’s agent (click here to read). By Marcie Geffner at HSH.com

2. FHA PFS Program Changes (click here to read). Biggerpockets.com

3. HUD postpones the ban on the dual agency in FHA short sales (link removed from host site). This is one of many reposts of the Inman story.

4. Dual Agency Hot Potatoe (click here to read). Real Estate Legal Services

5. 10 things real-estate listing sites won’t say (click here to read). By AnnaMaria Andriotis of MarketWatch.

6. Federal regulators probing real estate kickback schemes (click here to read). By Kenneth Harney of the Washington Post (nationally syndicated writer) This article appeared in numerous papers across the nation. Also appeared in Mortgage Professionals of America and other sites.

7. Are Open Houses a Waste of Sellers’ Time? (click here to read). Fox News

8. Pocket Listings Might Be the Hottest Controversy in Real Estate Today (click here to read). By Marcie Geffner

9. Affiliated Business Arrangements – more insight (click here to read) Eagle Land Title Agency Blog.

10. Pocket Listings limit buying pool and pricing potential (click here to read). Newsday, Yahoo! Finance and Bankrate.com

11. Real Estate open house: Doorway to trouble? By Marilyn Lewis. MSN Money

12. Homebuilders put buyers into credit boot camp. Reuters and in blogs

13. Class-Action Suit Highlights Dirty Business of Home Warranties. By Kenneth Harney (nationally syndicated)

14. Open Houses – One-sided Benefits for Agents. By James Kimmons. About.com Guide

15. How to Negotiate the Best Deal on a Home. By Tamara Holmes of Black Enterprise

16. Have Minnesota home buyers overspent by $63 million since 2010? By Andy Mannix. CityPages.com

17. The Affiliated Business Arrangement Addendum – What it really means to you. Rants and Ravings from your Maryland REO Title Expert (a blog)

18. MLSs mulling copyright enforcement group to go after “data pirates.” Lotus Real Estate Advisors

 19. No consensus on the real estate dual agency, double-ending. By Andrea Brambila, Inman news.

20. Survey: Open houses still have their place. InmanNews

21. MRIS injunction against NeighborCity applies only to photographs. InmanNews

22. Numerous stories in RESPANews and other affiliated online trade journals. No links because this is a pay for the content site.

Is NAR Running HUD?

HUD Bans Dual Agency on Tuesday

On Tuesday, HUD announced that is was banning dual agency on short sale transactions (transactions involving distressed homeowners) in order to help achieve its goal of an “arms-length transaction.” Dual agency is a business model employed by mega real estate firms that sacrifice their clients’ right to representation in exchange for a self-dealing opportunity to collect a double commission. Dual agency is illegal in every other profession because it rarely can be performed without some sort of fraud (or appearance of fraud) and it almost never results in an arms-length transaction. Ever heard the saying, “you cannot serve two masters?” Dual agency is the opposite of the definition of an “arms-length” transaction.

NAR Talks With HUD  – Ban on Dual Agency Lifted on Wednesday

On the same day HUD announced its ban on dual agency, the National Association of Realtors (“NAR”) wrote a letter to HUD and apparently “immediately began talks with HUD officials on the proposed change.” We wrote our letter yesterday, but apparently, we were too late. According to NAR’s webpage (click here to access), “On Wednesday afternoon HUD officials reported to NAR that they would reissue the July Mortgagee Letter (#2013-23) and remove all dual agency language….”  

HUD’s Definition of an “Arm’s-Length” Transaction

 “All doubts will be resolved in a manner to avoid conflict of interest, the appearance of conflict, or self-dealing by any of the parties (e.g., a real estate agent shall never be permitted to claim a sales commission on the sale of his own property or that of an immediate family member….)”

Perhaps HUD’s new definition of an “arms-length transaction” should be, “All doubts will be resolved in a manner to avoid conflict of interest, the appearance of conflict, or self-dealing by any of the parties so long as the party is not a large corporate real estate broker or a safeguard service affiliated with a real estate broker.” Conflict of interests harm consumers and there can be no special exceptions for businesses that choose a business model that profits from those conflicts. Dual agency is the absolute worst conflict of interest possible in a fiduciary relationship. It almost always devolves to the undisclosed dual agency (common-law fraud) and self-dealing (theft by swindle). One of the most important remedies often available to victims of undisclosed dual agency is rescission of the contract – because dual agency transactions rarely involve an arms-length transaction.

NAR’s Letter Was Not Factual

HUD capitulated on this issue based on discussions that they had with NAR. We are unaware of any conversations with consumer groups. We are aware that NAR’s letter was not factual.

Read our Letter to HUD here (we specify some of NAR’s factual deficiencies).

 

 

Sign Petition – No Copyrights on Client Data!

Please Sign Our Petition: No copyrights on client data! MLSs are claiming copyrights on seller data and then using those “rights” to limit market exposure of properties.The unfortunate result is that consumers lose their right to representation and houses are not freely marketed the way that should be. Brokers get a double commission.

 
Examples of MLS and data abuses.
 
MLS data is gathered by listing brokers who owe duties to their seller clients to sell their houses for the highest price and in the shortest amount of time possible. Unfortunately, by limiting access to MLS data, those brokers increase the opportunity to collect a double commission and in so doing reducing demand for their clients’ properties.
 
1.  MLSs are suing firms that freely redistribute MLS data (click here to read our story). MLSs are only willing to license their data if the redistributor helps brokers collect a double commission. They are claiming copyrights on this seller data. 
 

 

Seller Tip – Require Your Broker to Share Their Commission With Unrepresented Buyers

Sellers want to increase the market demand for your house and eliminate the competition? Require your listing broker to share the fee offered to cooperating brokers also directly with buyers. If your property is listed on the MLS, then your broker is likely offering a 3% commission to cooperating firms that find a buyer. Make sure that same money is also offered to “do it yourself” homebuyers who find your property without a broker.

Today many homebuyers are finding their homes through internet searches without the help of a Realtor. However, when they go to buy that home they are often unwillingly and unknowingly providing the listing broker with an opportunity to hog both commissions (the listing commission and the buyer broker’s commission). Although some listing brokers claim that unrepresented buyers require more work, we find that to be untrue. Many claim that they have to spend time showing unrepresented buyers the house and possibly writing the offer. Isn’t that their job? We believe listing agents should be present at every showing to help sell the house and protect the seller’s property. Request the buyer to hire an attorney to write the offer.

First, negotiate two commissions, not one bundled fee. One commission is payable to your broker and another commission is typically offered to brokers who procure a ready, willing and able buyer who purchases your house. There is a widespread practice throughout the united states of concealing this information from both buyers and sellers. Your listing broker will be offering compensation to your adversary’s agent and you have a right to be the controlling party in setting that amount and how it is paid. That means determining how much is paid to your broker and determining how much will be offered to cooperating brokers representing the buyer. It also means that you have a right not to offer compensation to the buyer’s broker or make that compensation payable directly to buyers who can use that money to pay their brokers directly or represent themselves and use the money to be applied towards the purchase price or closing costs.

Second, ask your broker to see the full MLS listing of your house and verify that your broker is offering fair compensation to other co-operating brokers. Some brokers offer substandard cooperative commissions reducing the demand on your home and at the same time increasing the probability that their firm will collect a double commission. This fee is a key element of your contract and should have been offered up for negotiation to you prior to you signing the listing contract. Failing to do so may be grounds to void the contract (check with your attorney). 

Next, once you determine that your broker is offering an agreed amount to cooperating brokers, demand that your broker offer and widely publicize this same amount to “do it yourself” buyers. If your broker refuses, you should try and find one who will agree to this. Most large and medium sized brokers will refuse to do this, however, for smaller firms that rarely engage in dual agency, this could be a fabulous market niche. 

When “Do It Yourself” homebuyers find your home, they will see that the 3% normally offered to buyer brokers is also available to them*.

Caveat – Make sure that buyer reports this seller’s contribution directly to their lender as soon as possible to avoid violating any lender requirements that could delay your closing.

*     There are a handful of states (click here to see the 11 states that have price fixed commissions) where it is illegal for listing brokers to share their commissions directly with buyers. In this case, offer to reduce the purchase price by that same amount if they are unrepresented.

Home Seller Tip for Today – Negotiate Both Parts of the Commission

Sellers – When you negotiate your broker’s commission, remember there are two parts to negotiate: The amount that goes to your broker and the amount that is offered to buyer brokers. Do not ever let your broker determine the buyer broker fee!

The Problem

For sellers, real estate commissions are one of the most misleading and anti-consumer aspects of residential real estate.  Real estate brokers typically omit (except in those states that require more thorough fee disclosures) negotiations on how much is going to be offered to the buyer broker. And they almost never publish the buyer brokerage fee that they are offering. In addition, we have yet to find a broker who offers this same amount to an unrepresented buyer who is trying to save money by doing the work themselves. 

The Solution

  1. Unbundle the Commission! Always insist on negotiating the commission as two commissions. Negotiate the fee you are going to pay your listing broker and the fee that is going to be offered to brokers working with buyers. Buyer brokers have to do a lot more work and invest a lot more time and money into their job, so do not be afraid to offer a larger percentage to them.
  2. Offer the buyer broker commission to buyers! If you want to generate more interest in your property, make sure that the money being offered to buyer brokers is also offered to unrepresented buyers or “do it yourselfers.”  Your listing broker will likely try to negotiate a price differential to unrepresented buyers against your favor. Do not fall for it. Unrepresented buyers should not require more work if they use an attorney to draft the offer.  Finally, insist that the listing broker publish the fees being offered to buyer brokers and unrepresented buyers in all their advertising on your house.

Example:

Seller calls 5 listing agents with this offer:  I will consider listing my house with you if you agree to a 2% commission and offer 3% to buyer brokers and unrepresented buyers (total of 5%). You agree to publish the buyer broker/unrepresented buyer offering in all your ads about my house.  

Click here for TIPS on how to negotiate commissions a seller’s Realtor.

Click here for TIPS on how to negotiate the terms of your listing contract.

 

Check Out Our Lists of Service Providers!

We have state-by-state lists of:

Exclusive Buyer Agents

Discount Buyer Agents

Independent Title Agents

No one else has lists like this and provides them at no charge. Beware of firms that offer to find you discount agents or exclusive buyer agents and seek your personal information. All of them that we have encountered are collecting large referral fees from the agents to whom they refer you.

 

Are MLSs the Real Data Pirates?

Have the Tables Turned in the Neighborcity Cases?
Who are the Real Data Pirates? 
 
Multiple Listing Services (MLSs) around the country that launched an offensive against Neighborcity (“AHRN”) may have reason for pause because the legitimacy of AHRN’s counterclaims was just affirmed in the Minnesota Northstar MLS (“Northstar”) case. Northstar, claiming a copyright on “their” data (obtained by fiduciaries in the course of their duties), sued AHRN, a so-called “data pirate,” for redistributing sellers’ listing data to the public. Northstar may now find that they made a collasal error as the real story appears to be emerging.  
 
According to AHRN’s counterclaim, Northstar and other MLSs have refused to license “their” seller data to AHRN because AHRN discourages dual agency and refuses to feature listing brokers on its site (a pro-consumer position that CAARE embraces). In its counterclaim, AHRN alleges multiple antitrust allegations including that Northstar and other MLSs started a group boycott against AHRN encouraging members not to accept referrals from AHRN. 
 
We believe that AHRN may have legitimate and very significant claims against Northstar. Apparently, so does the Judge.
 
Judge Tunheim, in his recent Order (click here to see the Order) refusing to dismiss AHRN’s counterclaim spelled out how this MLS action may have exposed the Northstar MLS to liability for antitrust violations. In fact, we believe that AHRN’s counterclaim has now become the primary focus of this matter. Northstar MLS may have opened a Pandora’s Box of issues and they may find themselves wishing they had never filed this case. In our opinion, this case is no longer about whether AHRN violated copyright laws, but whether Northstar engaged in anticompetitive conducts in refusing to license data to AHRN.  If AHRN wins their counterclaims, they will no longer be the bad guy, but the victim of restraint of trade. Those brokers who have refused to do business with AHRN may be construed to be conspirators to a group boycott. 
 
CAARE advocates that data obtained by real estate fiduciaries be used only for their clients’ best interests and never for self-serving purposes. For us, this case raises many consumer concerns and some potential consumer causes of action beyond the issues in the case. Did Northstar improperly convert seller data obtained by fiduciaries and did they manipulate the distribution of that data in such a way as to wrongly increase their clients’ exposure to dual agency?  If the MLSs did improperly convert fiduciary data that would make them the data pirates, not AHRN. 
 
AHRN’s Counterclaim – You Decide (some of the key points in the Order)
 
Consider some of the allegations in AHRN’s counterclaim and findings of the Court and decide for yourself who might win this case.
 
1     .RMLS, NAR, other MLSs, and member-brokers of RMLS conspired to unreasonably restrain trade.
2.     RMLS, NAR, other MLSs and member-brokers of RMLS initiated a “group boycott” to refuse to engage in good faith negotiation with      AHRN on licensing agreements.
3.     RMLS, NAR and other MLSs coordinated assertion of invalid copyright claims for the purpose of suppressing competition in the market for real estate brokerage referrals and the market for real estate agent services.
4.     AHRN has been damaged because RMLS dissuaded brokers and agents with RMLS’s service area from entering referral agreements with AHRN and prohibited AHRN’s access to information about properties on the market.
5.     RMLS’s anticompetitive conduct causes harm to consumers in the real estate market by suppressing information about and access to agents who are independent of listing brokers and agents and discouraging price competition for brokerage services and for home prices.
6.     “The Court finds that AHRN has sufficiently alleged that RMLS’s petitioning activities were a sham. For example, AHRN alleges that, in the instant action, RMLS has asserted a copyright over the manner in which the facts and data are compiled on NorthstarMLS, even though the RMLS database is built on software RMLS did not design and does not own.23 AHRN also alleges that RMLS did not take the photographs over which it claims copyrights, and that it did not obtain the written assignments of these copyrights from the photographers that are required under the Copyright Act. These allegations, if true, could show that RMLS’s threats and pursuit of litigation against AHRN were in fact a sham.”
7.     The Court finds that AHRN has alleged a plausible conspiracy among RMLS, other MLSs and NAR. “First, AHRN alleges that it received thirty similar cease and desist letters after NAR held its annual meeting in California. AHRN alleges that, at this meeting, there were discussions regarding the perceived threat that AHRN posed to the industry and what the industry could do to shut down AHRN. These allegations create a plausible relationship between the NAR meeting and the cease and desist letters. Second, AHRN alleges that Mosey sent an e-mail suggesting that AHRN should not think that MLSs were “unconnected, unserious, and more noise than threat.” This e-mail could further suggest an agreement between RMLS and other MLSs. Third, AHRN alleges that NAR voted at a later meeting to fund this action and other legal actions and adopted exclusionary rules. This allegation further supports the possibility of an agreement to pursue concerted action. Fourth, when AHRN approached third-party syndicators – through whom RMLS and other MLSs license the use of their data to other websites – it was allegedly told that the syndicators were not permitted to extend a license to AHRN because AHRN did not direct potential home buyers to a listing broker’s website. This allegation also raises the possibility of an agreement to pursue concerted action by suggesting that RMLS and other MLSs may have instructed third-party syndicators not to deal with companies who did not comply with their preferred business model. At this stage, the Court therefore finds that AHRN has sufficiently alleged a preceding agreement to engage in concerted action.”
8.     AHRN alleged that, “RMLS and its member-brokers colluded to use RMLS as a vehicle to assert false copyright claims that impeded AHRN’s business model and to exclude companies like AHRN from accessing the universe of listings needed to compete. Furthermore, AHRN has alleged that RMLS and its member-brokers dissuaded brokers and agents within RMLS’s service area from entering referral agreements with AHRN.”
9.     The Court finds, at this stage, that AHRN has sufficiently alleged a group boycott that amounts to a per se violation. First, AHRN alleges that RMLS and its co-conspirators cut off access to the “supply . . . necessary to enable the boycotted firm to compete.” Specifically, AHRN alleges that RMLS and its co-conspirators have cut off access to information that is critical to any business attempting to compete with them. These allegations satisfy the element of cutting off a supply necessary for AHRN and similar businesses to compete. Second, AHRN has alleged that “the boycotting firms possessed a dominant position in the relevant market.” See id. As noted above, AHRN alleges that there is no practical way for it to compete without licensing information directly from RMLS because RMLS and its co-conspirators dominate the market and information regarding home listings. Third, AHRN has alleged that the challenged practices were “not justified by plausible arguments that they were intended to enhance overall efficiency and make markets more competitive.” AHRN alleges that RMLS will only deal with competitors who comply with the business model of referring customers to listing brokers, which is allegedly intended to increase member-brokers’ profits at the expense of competitors and is not intended to enhance overall efficiency or to make markets more competitive. These allegations are sufficient to raise per se violation claim.
10.     The Court finds that AHRN has alleged that RMLS’s business model has anti-competitive effects. Specifically, AHRN alleges that RMLS and its co-conspirators promote “dual-agency home sales,” wherein a seller and buyer’s agent are associated with the same agency. According to AHRN, because commissions are based on the sale price of the home, a broker and agent relying on dual agency have little incentive to negotiate in the interests of either the buyer or the seller, and both the buyer and the seller lose any right to independent advice and representation from the agent and broker.  AHRN also alleges that the behavior of RMLS and its co-conspirators serves to increase the price of referral fees by excluding actors like AHRN from the market.
11.     The Court finds, however, that AHRN has plausibly alleged that RMLS and its co-conspirators have attempted to restrict access to real estate listings to parties who will send potential home buyers to listing agents’ companies, thereby eliminating competition from those that do not comply with RMLS’s business model.
12.     AHRN has alleged that the dual-agency process results in less negotiation on behalf of customers after these initial prices are set. Thus, AHRN has plausibly alleged that the conspiracy has an effect on home prices and commissions.
13.     RMLS also argues that AHRN has not alleged that its activities produced significant anticompetitive effects because it has not plausibly alleged market foreclosure. Specifically, RMLS claims that AHRN is able to access “for sale by owner” and foreclosure listings and has already shown that it has entered into licensing agreements with over 180 Minnesota licensed real estate brokers and approximately fifty Minnesota licensed real estate agents. The Court finds, however, that AHRN has plausibly alleged that there are no reasonable alternative sources of complete real estate data than from MLSs and that RMLS’s refusal to license its data therefore had an effect on the ability of businesses like AHRN to compete.
14.     AHRN alleges that, by advising its member-brokers that information obtained and used by AHRN on its NeighborCity website is subject to valid copyright protection, and that AHRN’s use of such information is unlawful, RMLS has disparaged the services and business of AHRN with false and misleading statements.

Another reason affiliated title companies are bad for our economy – Price Fixing

The Minnesota title industry’s 100 million dollar price fixing scheme

What happens when you allow the real estate brokerage industry to control the title insurance industry?  In Minnesota the answer appears to be price fixing.

When a real estate brokerage firm has an ownership interest in the real estate safeguard service called title insurance, that relationship is called an Affiliated Business Arrangement (“AfBA”). We do not believe that it makes any sense to allow a gatekeeper, like a title firm, to have any relationship with an industry that has a huge success fee invested in every transaction. Minnesota may now be the best piece of evidence needed to demonstrate why affiliated title firms have no legal business purpose in providing real estate safeguard services to lenders and consumers. In light of the recent foreclosure crisis, these AfBA should be prohibited, yet now there is a Realtor sponsored bill that proposes to give this anti-consumer, inappropriate and unsafe business relationships preferential legal treatment under federal law. As we have discovered, not only are these AfBA’s unsafe, they also lead to market manipulations and artificial price increases.

In 2010, the Minnesota Realtor Association (MNAR) provided a forum for competing real estate brokers with title insurance AfBA’s to create a market inefficiency and eliminate routine title insurance discounts. MNAR allowed these brokers to change a boilerplate statement in the MNAR standard purchase agreement that secretly wiped out these discounts. We estimate that MNAR and these brokers have already cost Minnesota homebuyers over 100 million dollars (money that unfairly profited the title insurance industry).

There is a long history of how real estate brokerages have influenced the upward pressure of title insurance costs. In many areas, real estate brokerage firms have become loss leaders for their affiliated ancillary services like title insurance. Consumers are particularly vulnerable to manipulative market practices when it comes to selecting title firms because they rely so heavily on the guidance of their real estate brokers. At the time consumers are presented with the decision of selecting a title firm, they are often overwhelmed with other aspects of the transaction and defer to the Realtor’s recommendation. Rarely is the consumer informed enough to question the drawbacks to the relationship between the broker and their title firm. As a result, consumers do not shop and compare title firms and neither does their Realtor. The vulnerability to price gouging is at its highest for the purchase of title insurance services.

Title insurance firms affiliated with real estate practitioners are bad for our economy for many reasons – they eliminate competition through market manipulations, they increase prices and destroy important safeguards that lead to things like mortgage defaults, consumer bankruptcies and financial crisis’s. Now there is another reason. Price fixing.

When real estate brokers can convene at their trade association’s headquarters and change a “neutral” form that approximately 99% of homebuyers and sellers use and that change creates a market inefficiency that puts an extra 100 million dollars in those brokers’ pockets, there is a problem that needs to be addressed. This situation discloses the temptation level present to unfairly profit from title insurance and the vulnerability of real estate consumers (their clients).

Title insurance is already highly complex and vulnerable to artificial upward fee pressures and premiums (from AfBA’s that do not have to compete for business) that have nothing to do with actuarial data or losses. There is a long history, just in Minnesota, of form changes that have caused Realtors to profit from ancillary businesses or receive unfair liability protections. Regulators should be focused on prosecuting brokers for actions like this and eliminating the mechanisms that facilitate this type of conduct. Title insurance price increases now have everything to do with the inappropriate financial incentives that exist between real estate brokers and their affiliated title firms. Although this inappropriate upward pricing pressure has existed among individual real estate brokerage firms for a long time, the blatant price-fixing that happened in Minnesota takes the situation to a whole new level.

The idea that there is a Realtor sponsored bill proposing to provide preferential treatment to AfBA’s offends logic and fairness. AfBA’s are legally tolerated only if consumers sign AfBA disclosures that provide minimal disclosure of the conflicts of interest and those “disclosures” (designed by Realtors) do not come close to obtaining the informed consent of their clients. AfBA’s are considered to be second-class citizens in the realm of title insurance and transaction protections that consumers should demand by selecting independent title firms. Although the brokerage industry may be powerful lobbyists, no legislator should consider giving these conflict-ridden market manipulators preferential treatment over independent title firms that insist upon conflict-free service.

of this situation with some of the documentation we have collected.