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Sign Petition to Improve This Mortgage Fraud Law

The mortgage fraud law called RESPA (Real Estate Settlement and Procedures Act) has only a 1 year statute of limitations. That means that someone intent on violating this law has very little risk of being held accountable. Lawyers representing consumers in mortgage foreclosure or mortgage fraud situations are reporting that by the time consumers realize that they need help, that far longer than 1 year has elapsed and there is often no recourse.

Click here to Sign Petition

The mortgage fraud law called RESPA (Real Estate Settlement and Procedures Act) has only a 1 year statute of limitations. That means that someone intent on violating this law has very little risk of being held accountable. Lawyers representing consumers in mortgage foreclosure or mortgage fraud situations are reporting that by the time consumers realize that they need help, that far longer than 1 year has elapsed and that there is often no recourse. The Consumer Finance and Protection Bureau (CFPB) enforces RESPA and their hands are tied on most consumer fraud cases involving RESPA because of this limitation. If we are going to have this mortgage disclosure and anti-kickback law, then it needs to exist so as to make enforcement practical.  As it stands now, the law provides bad actors related to mortgage finance an opportunity to break the law with impunity or at least very little deterence. 

If you want to help stop mortgage fraud, improve mortgage disclosure enforcement actions and stop illegal kickbacks in the residential real estate process, then please sign our petition to increase the statute of limitations to 6 years.  

Click here to see an example of how a one year statute of limitations limits liability and deterence.

Our petition is supported by two national trade associations which are regulated by RESPA.  National Association of Independent Land Title Agents (click here for our post), the National Association of Independent Housing Professionals (NAIHP) and the National Association of Exclusive Buyer Agents (NAEBA).

 

Dual Agency Plagues Boston Luxury Homebuyers and Sellers

 

Luxury home buyers and sellers are certainly not immune to the problems of dual agency. Commissions on luxury homes often exceed $50,000 so why would anyone give up such important services as assistance with negotiating a price or negotiating terms of the transaction? When homebuyers use the listing agent to buy their homes not only are they giving up their right to representation on a million dollar asset, they are rewarding the agent for this betrayal with a double commission.

Here is a sampling from the blog post and a link to it:

“Looking at single family homes sold over $900,000 in one community, we were stunned to discover that 70% of one well-known listing agent’s sales were in-house; and in more than one in four sales, the MLS listed her as both listing agent and sales agent.” Click here for a link to the story. The story first appeared in the Boston Globe (the story is no longer online).

Will more Realtors pull MLS listings from Trulia & Zillow in 2012?

opposingteams

Recently, Edina Realty made national news by pulling their sellers’ listings from two of the most popular websites frequented by home buyers, Realtor.com (the number 1 real estate website in the country) and www.Trulia.com (in the top 4). Both of these sites are free and provide valuable information to consumers.  Industry critics and real estate consumer advocates like CAARE believe Edina Realty did this to capture more double-sided commissions (called “hoggers” or “double dipping”). Although that may be great for Edina Realty, the inherent conflict of interest is very bad for real estate consumers – both homebuyers and sellers.

What would you do? If you were interviewing Realtors to sell your home, which agent would you pick: One from a firm that has a marketing plan that includes placing your home in the most popular (and free) real estate portals in the nation or one from a firm that excludes those sites?

Ironically, if Edina’s plan works, they could get paid about twice as much while hiding their listings from potentially millions of potential site visitors per month. If buyers find Edina Realty listings on Edina’s website they will be directed to an Edina agent. If they use that agent to buy an Edina home, Edina will pocket a whopping double commission and expose both clients to dual agency. Dual agency is the worst conflict of interest an agent can impose upon their clients. It means that both the buyer and seller would forfeit their right to an advocate and representation, at the exact time when they need them most – when they are ready to negotiate. When the buyer selects an Edina agent, he does not just forfeit his right to representation, he neutralizes and forfeits the seller’s as well. Dual agents are prohibited from negotiating price or terms (negotiating advice is one of the top reasons consumers hire Realtors). That means less work for the firm and a lot more money. It also means less service from Edina’s agents; and potentially less PROFIT for sellers and less potential SAVINGS for home buyers.

By forgoing potentially millions of eyeballs on two leading real estate portals, one could argue that Edina is betting the “double dip” they will get from dual agency transactions will more than make up for the loss in visibility — a loss that could increase market time of listings and loss of clients who DO want wider distribution of their home. Still, if they play their cards right, consumers will never notice the change and Edina will see a lot more hoggers. Even worse is if the speculation pans out that HomeServices of America, Inc. (Edina’s parent company) is using Minnesota as a testing ground for the rest of the country. If other brokers see that Edina is profiting from double dipping, their conflict of interest (and self-dealing?) could spread across America as other brokers follow suit.

www.Trulia.com, www.Zillow.com, and www.Realtor.com do not just provide great market exposure for sellers, their business models help reduce the risks of encountering dual agency (zero representation). Through links, banner ads, and agent directories including buyer agents, consumers using Trulia, Zillow and even Realtor.com are given a choice of agents to work with, rather than simply being directed to the listing agent. The result, hopefully, is that fewer buyers are trapped in a dual agency situation without their consent or knowledge.

BOTTOM LINE: Home buyers should ALWAYS select an agent from a brokerage firm unrelated to the listing so their advocate can negotiate tangible financial benefits. That is possible when buyers use real estate portals which allow them to choose a real buyer agent without a conflict of interest. By pulling their listings from Realtor.com and Trulia.com, and funneling them through their own website, that is not an option with Edina.

Edina Realty should be concentrating on giving sellers the best possible representation, rather than how to reduce their seller’s properties’ market visibility. In this day of monumental real estate mistakes, do we really want to have consumers unrepresented? And then charge them twice as much to do it? Does Edina really think buyers and sellers will miss the obvious conflict of interest in the cartoon above?

Home buyers and sellers, if you are confused by broker babble and fine print about dual agency, designated agency, and other forms of counterfeit buyer agency, ask your buyer agent to sign this Pledge of Allegiance to reveal if he is really on your side!

Note: If you have a home listed with Edina Realty and are not pleased with this situation, you may want to have your listing agreement reviewed by an attorney.

CAARE says:  Sellers should ALWAYS review marketing plans of prospective listing agents and make sure that plan includes listing their property in all the free websites that buyers frequent (www.Trulia.com, www.Zillow.com, www.Yahoo.com, www.Realtor.com etc…).  In addition, review CAARE’s consumer-friendly LISTING CONTRACT for ideas in terms to include in your contract.  Buyers should avoid websites that are affiliated with brokerage firms and choose independent websites so that they are not automatically directed to an agent that will cause them to forfeit their right to representation.  Finally, if you are an Edina Realty agent, please address this matter with management.

This story was submitted to CAARE by Bill Wendel.   Bill is an exclusive buyer agent (EBA) from Boston.  In order to avoid conflicts of interest that come with dual agency, his firm only represents buyers and will not accept listings.Bill also is a strong advocate for the negotiation of buyer brokerage fees and is included in our LIST of brokers who discount.

His website: www.realestatecafe.com and can be reached at RealEstateCafe@gmail.com

Invitation to the Real Estate Industry to Change RESPA

This is an invitation to the real estate industry to strengthen the Real Estate Settlement and Procedures Act (RESPA).   We challenge anyone to defend the current one year statute of limitations of RESPA as being reasonable.  We believe that a one year statute of limitations encourages dishonest industry participants to engage in illegal conduct with little prospect of being caught in time to be prosecuted.  A one year statute of limitations provides zero deterrent to dishonest industry participants.  We are appealing to industry participants to support change that will make the business of doing real estate better for both consumers and business.

It is time for everyone connected to the real estate industry to take a stand and stop the illegal kickbacks and other illegal activity defined in RESPA.  RESPA is a worthless statute without a meaningful statute of limitations.   

We will post the names of the trade associations that support this change on our website.  We hope to send out invitations directly to these trade associations the week of March 5th, 2012.   Some organizations are already indicating their support before the invitations have even been sent out (see below).

Trade associations that wish to announce their support of this change only need to send an e-mail to ChangeRESPA@caare.org.  The e-mail needs to come from an authorized representative of their trade association and state that they wish to see the RESPA statute of limitations increased to six years.  They may alter the term if they like.   However, the only issue we are addressing is the statute of limitations. 

We also encourage them to send e-mails to their membership encouraging them to sign the petition which can be found here: SIGN PETITION (CLICK HERE)    

The Following Trade Associations Support This Change 

The National Association of Independent Land Title Agents ()

The National Association of Independent Housing Professionals (NAIHP)

 

 

National Consumer Alert – Avoid National Open House Weekend

National Consumer Alert – for Buyers and Sellers

Avoid Nationwide Open House Weekend 

CAARE is releasing this consumer alert to warn home buyers and sellers to avoid the Nationwide Open House weekend being promoted by the National Association of Realtors (“NAR”). Open houses are proven consumer traps for both buyers and sellers and they substantially increase sellers’ exposure to criminal activity. Open houses are great for brokers and rookie agents to find new leads on clients not interested in the specific open house.  
 
Seller Warning
Security Risk to Sellers 
It is well documented that theft and even violent crimes often occur at open houses. Publishing an open house is an invitation to criminals and provides a unique opportunity for criminals to case a home for a future crime or commit a crime while someone else distracts the onsite Realtor. NAR does not mention this risk in their promotions. Realtor listing contracts exclude liability for thefts that occur at open houses.
 
Open Houses Do Not Sell Houses  
“Only a small percentage of homes are sold through open houses 1.” NAR’s survey unfortunately combines their “statistics” on open house “signs” with yard signs. The problem is that yard signs alone are a very successful tool to sell houses and open houses are not.  The NAR survey inquires about open house “signs,” rather than the open houses themselves, which creates ambiguity in the results. On a scale of 1 to 5 (with “5” being very effective and “1” being not effective at all), top real estate agents rated yard signs as the top selling tool (above the MLS) with a rating of 4.68 and placed open houses 10th on the list with a score of 2.88 2.  Together, yard signs and open house signs accounted for 10% of how buyers found their homes (See exhibit 3-9 below 3. ). We suspect that open houses account for less than 1% of home sales. One of our members attended a continuing education class in which the instructor proclaimed that open houses serve one purpose – to find buyers to buy other houses.
 
Buyer Warning 
According to NAR, “Potential home buyers rely on open houses to help them find the home of their dreams. ”  We find this statement misleading because most home buyers do not find the home that they are going to purchase by visiting open houses.
 
Open Houses are Traps
Buyers who enter an open house are often unknowingly giving up their right to hire a buyer broker of their choice. That means that they lose the right to have someone provide important negotiating advice on price and terms. If the seller’s broker feels that they are the procuring cause of the sale, they can refuse to share their commission with your buyer broker. Since buyer brokers get paid from the seller’s broker, that creates a problem for buyers.
 
Rookie Agents from Mega Firms Work Most Open Houses
Open houses are often training grounds for rookie agents who possess little expertise. Most open houses are run by large listing firms that have conflicts of interests that negatively affect buyers. Buyers should not use open houses to find an agent. 
 
Do It Yourself Buyers
Some buyers want to find their home themselves and visit open houses as part of the process. Unlike sellers who save thousands of dollars if they sell their house themselves, buyers save nothing unless they know how to negotiate for the commission offered to buyer brokers. Sellers brokers love do it yourselfers because they often turn them into a double commission pay out.  See CAARE’s Open House Form (click here).
[1] Home Sellers Handbook – Minnesota Attorney General’s Office
[2] Survey Slams Door on Open Houses.  CRSs Pick Favorite Listing, Selling Techniques
[3]

Maryland and Designated Agency

Today CAARE wrote a letter to the Senators considering a licensing law change to the Maryland Real Estate Brokers Act.   To see our letter click here.

Maryland’s current statutory scheme is contradictory in that it embraces the notion that designated agency can exist in a two tiered licensing scheme where the brokers are responsible for supervising their salespeople.  Here is an excerpt from our letter:

“Section 17-530(d)(1)(v)1]  of the Act allows salespersons to exceed the limits of the broker’s legal relationship with the client – an impossible result.  This part of the Act addresses the situation where dual agency occurs and the broker is legally prohibited from negotiating to the detriment or benefit of either party.  However, this section of the Act is incorrectly constructed in that it actually allows the salesperson, in a dual agency situation, to do exactly what the broker is prohibited from doing – negotiating price and terms.  How can a sub-agent of the broker (the salesperson) be allowed to negotiate on behalf of the broker’s client, when the broker is legally prohibited from doing so?   They cannot. 

How can the broker fulfil their licensing responsibility to supervise their salespeople when their salespeople are engaging in acts for which the broker is prohibited?   If the salesperson consults their broker about the legality of certain negotiating terms, how can the broker advise their salespeople when doing so will violate the Act.  The current statutory construction is logically flawed and needs to be revised. 

Although we understand how profitable dual agency is for large brokerages in that they get to keep a double commission, at some point we must balance the integrity of the licensing scheme and consumers’ interests.  The current Act does not do that.”

 


1] §17-530 (d)(1)(v) Establishes that “An intra-company agent representing the seller or buyer may provide the same services to the client as an exclusive agent for the sell or buyer, including advising the clients to price and negotiations strategy, provided that the intra-company agent has made the appropriate disclosure to the client and the client has consented, as required by this section, to dual agency representation.”

 

CAARE was quoted in Inman News yesterday

INMAN News Story Dual Agency, No consensus on real estate dual agency, double-ending quoted from CAARE’s website yesterday:

“Nonprofit consumer advocacy group Consumer Advocates in American Real Estate (CAARE) calls dual agency involving one agent “legalized fraud” and “the ultimate ‘bait and switch.’ ” The group’s argument is that when a previously represented buyer becomes interested in a home listed by the same agent, that agent can suddenly cease to be an advocate for the buyer.

“Dual agency is potentially one of the worst ‘bait and switches’ possible because it involves the ‘switch’ (abandonment) of a trusted adviser and advocate. Even with disclosures, consumers rarely expect the change in relationship that comes with dual agency and they are almost never prepared for the complete abandonment that defines dual agency,” the group said on its website.“

CAARE has a lot of information on dual agency and is compiling more.  Feel free to contact us if you are interested.  Thanks Inman. 

 

 

Title Industry Association Supports Our Petition For Better Laws

The National Association of Land Title Agents (NAILTA.org) announced their support for our petition to increase the RESPA statute of limitations (look back period) from 1 year to 6.  Click here to sign our petition.  RESPA is a consumer anti-kickback statute enforced by the Consumer Finance Protection Bureau.  A 1 year look back period is a joke among attorneys and makes this real estate consumer protection law nearly impossible to enforce in a meaningful way.  It is significant that the title insurance industry is regulated by this law and that NAILTA supports us that their own industry needs better regulation.

Prior to submitting our petition to the general media we have first submitted it to the industry.  Our logic is that if the regulated industry supports us, then Congress will have a difficult time defending a toothless real estate enfocement statute.  Today RESPA News (trade journal of the real estate industry) covered our petition as their lead story.  The first trade association to step up and support our consumer cause is NAILTA.

NAILTA is a trade association of the title insurance industry.   Here is their misssion:

Who Is NAILTA?  

The National Association of Independent Land Title Agents (NAILTA) is a non-profit trade association that represents the interests of independent title insurance agents and independent real estate settlement professionals from across the United States. It was created by independent real estate settlement professionals to further the agenda of small business owners from within the title insurance, abstracting, surveying, and real estate community who lack representation at local, state and national levels. As an independent agent and settlement service professional, your voice is important and we want to hear from you! Join NAILTA today – it’s quick and easy! 

NAILTA seeks to: 

1. Restore transparency and credibility to the land title process and preserve an objective and impartial role at the closing table to improve the consumer experience.  

2. Address the proliferation of controlled business arrangements and eliminate conflicts of interest between title agents and their referral sources, as well as, between all real estate settlement service providers and their sources of business.  

3. Establish a minimum search standard for title examinations to restore faith in the system of land title.  

4. Knit together common interests and concerns from across the country and across the entire spectrum of real estate settlement service providers to successfully advocate for independent agents and their like-minded partners in the real estate settlement service community in order to effect positive change on the title industry.

Minnesota Attorney General’s Office is Misleading Consumers

The Minnesota Attorney General’s Office (“AG”) has got it all wrong on the section of their webpage dedicated to housing.  And apparently, they don’t care as we’ve been trying to call their attention to this problem for over two months. In these difficult times when the housing industry has financially wiped out so many consumers, how is it possible that the AG’s office could be so apathetic about the information they provide to the consumers they’re supposed to be representing.

From dual agency to title insurance, apparently the AG in Minnesota doesn’t understand the consumer housing industry and has no qualms about spreading mis-information to Minnesota consumers.   

For example, shopping and comparing title insurance is a complex and often intimidating process for those consumers who attempt it.  However, if consumers rely upon the AG’s office for advice in this matter, they can expect to over pay for their title insurance.

Here’s mis-information from two different sections on title insurance quoted directly from the Minnesota AG’s website:

“ A savings on the cost of title insurance, when the buyer uses the same title company that the previous owner used. Because the company is “re-issuing” the insurance, it can offer a lower rate.” (NOTE: The Attorney General’s office has removed this miss-information from their book. However, much of their handbook is still out of date and contains other bad information).

“Asking Can Save You $ (click to see page) Be sure to ask for a re-issue credit on your title insurance. If the seller bought an owner’s title insurance policy within the past few years, the same title company the seller used may issue you a new policy without redoing all the paper work. This can save you a lot of money!” (NOTE: The Attorney General’s office has removed this miss-information from their book. However, much of their handbook is still out of date and contains other bad information).

This is important because reissue credits can often save consumers as much or more than $500 on title insurance.   The truth is that reissue credits are available at ANY title company that offers them, not just the own the previous owner used as the AG’s site proclaims.  In fact, today one very large title underwriter, Old Republic National Title, eliminated reissue credits from their rate filing on new purchase transactions, so if a consumer follows this advice they could easily be out several hundred dollars if they select a title company that uses that underwriter, like Burnet Title or Edina Realty Title.  And the discount has nothing to do with “reissuing” the title insurance, it is a discount offered because of the reduction in liability exposure.  Essentially, the new title insurer can “piggyback” upon the coverage offered in the previous policy.

But there’s more…

Reading through the AG’s website on “housing” is almost a lesson on how NOT to buy or sell a house.  Dual agency is explained in impossible to understand and incorrect terms.  The forms cited are all from the Realtor trade association perpetuating the myth that the Realtor forms are the “standard forms.”  We could go on and on…

Here’s the short list of problems with the AG’s website in regards to their “Home Buyer’s Handbook” starting with Section Four:

  1. “Visit Open Houses.”  Very bad advice.  Visiting open houses almost ensures that a commission dispute will arise if you later hire your own agent.   Open houses are traps that lead to dual agency and the listing broker “hogging” the entire commission.   Avoid Realtor open houses.  
  2. “You can also view listings online at:  MLS.com…”   Hang on a minute, MLS.com is a commercial entity – from their website:  “MLS.com is independently owned and operated and is not affiliated with any of the over 900 local MLS systems. We offer the public access to multiple listings throughout the United States by providing advertising services for real estate agents and real estate related industries.”  Since when does the AG’s office offer free advertising to for profit firms?  If you want to search for listings, use a site such as www.zillow.com or www.neighborcity.com that accepts listings from both Realtors and home sellers.
  3. “Understanding the Purchase Agreement.”  Not one mention of using an attorney to draft this form.  Rather, they instruct the buyer to “read the purchase agreement thoroughly.”   This is the most important document in the whole transaction and contains numerous complex legal terms –  HIRE AN ATTORNEY.  And don’t wait until after your Realtor has drafted it – it’s too late then.
  4. “Arbitration.”  There is no mention of the extraordinarily high filing fees if you want to file an arbitration which can often be in excess of $600.   In addition, there is no mention of the boilerplate arbitration clauses that are often contained in listing and buyer representation contracts.
  5. “Title Insurance.”   No mention of the difference in costs or the very large difference in insurance coverage offered by different types of policies.
  6. “Dual agency…The term refers to an agent representing a buyer in an offer on a house when that agent actually owes a duty to the seller of the house.” SERIOUSLY?  Dual agency is an impossible conflict of interest where the agent owes duties to BOTH parties.  This section goes on to discuss “equal” representation and other made up terms that confused even us:  “Unfortunately, not agreeing to dual agency may prevent you from buying a home listed by your agent’s company. You can cancel an agreement to dual agency for a particular property, if you choose.”  None of this is accurate.
  7.  “Business Relationship Disclosure.”   Poorly written, lacking in logic and completely inaccurate.  “Your agent may receive a referral fee or other benefits if he or she directs your business to these companies. Agents can be paid according to the number of referrals they make to an affiliated company.”  Referral fees are ILLEGAL!
  8. “Sample Purchase Agreement.”  It’s an out of date Realtor form on their site…
  9. “Appendix E: Explanation of Closing Costs.”   It is possible that 50% of their quoted fees are completely out of date or inappropriate.  For example, most title companies have bundled all their fees together in an attempt to comply with new RESPA rules.
  10. “HUD-1 Settlement Statement.”  Again an outdated form.

We give Minnesota Attorney General’s website an “F” for causing consumers who rely upon a trusted resource to be terribly misled about the housing industries.