Category: News

Association of Real Estate Licensing Law Enforcement Officials reaches new low

How bad is real estate licensing regulation in the United States?

Imagine if the leader of the one organization charged with organizing all the real estate licensing authorities in the U.S. were run by a Realtor. That is exactly what happened (click here). Once again, ARELLO has succumbed to the industry standard of allowing the regulated to be the regulators. Not only are most states infested with Realtors in their enforcement agencies, now the top regulatory and enforcement is again overrun by them. Just visit their sites (www.ARELLO.org and www.ARELLO.com) to see the many references to the Realtor Association.

Realtors have a cartel. They are the second biggest lobby spender in the United States (1st if you don’t count the U.S. Chamber of Commerce), they brag that over 90% of the candidates they supported got elected in the last election, they are the biggest advertiser in most local newspapers and control real estate news content, they practically appoint legislators and regulators, they write licensing laws that protect the industry from consumers, they have lowered the licensing entry standards so low that many states don’t even require a high school diploma, and they work together to ensure that consumers pay far more than they should for real estate services.

What does this mean for consumers? It means that we would likely be far better off without licensing laws that protect Realtors from consumers. If there were no licensing requirements, perhaps property data would be more freely available and Realtors could no longer hold that data hostage. Consumers could buy and sell houses at a fraction of the cost too.

The highly suspect Vision, Mission and Core Purpose statements of ARELLO:

VISION: ARELLO® is the essential resource for making real estate regulation better.

MISSION: ARELLO® supports jurisdictions in the administration and enforcement of their real estate license laws.

CORE PURPOSE: ARELLO® brings regulators together to promote excellence in real estate regulation.

You really need to pick your own title company

Few consumers understand that the title company that performs the closing on their house may be the most important service provider in the entire transaction. Title companies investigate title, they examine title and they make the incredibly important title and closing decisions that have an enormous impact on your transaction. They need to be impartial. That means that they can never be related to your brokerage firm.

Consider that most Realtors used to give their clients a list of 3 title firms to choose from with the disclosure that they are not affiliated with any of them. Today Realtors give their clients two choices – use my title company or go find your own. Realtors are responsible for most people overpaying for closing costs and using completely conflicted firms to do the work. If your Realtor recommends an affiliated title company, that is reason to stop trusting your Realtor in all matters.

How to select a title company:

  • Compare. Look for comparison sites that might disclose how much title companies charge and whether or not they are affiliated. In Minnesota, there is a local firm that provides a comparison of 20 title firms (click here). The regulatory division in Nevada compares even more (click here).  Disclosure – CAARE’s Executive Director used to own the Minnesota company referenced above.
  • Get a Quote. Visit the websites of the title firms you are considering and get online

    fee quotes. Ask the firm that you select to guaranty your quote won’t change.

  • Are they Rated? Visit the rating sites for any firms you are considering such as Yelp, BBB, GooglePlus, etc…
  • Enforcement Actions. You need to determine the name of the regulatory authority for your state. Most states allow you to look up licensees to see if they have enforcement actions. 
  • Social Media and ads. Search the firms you are considering for any evidence that they are throwing parties for Realtors, taking them to sporting events or any other inappropriate activities. In the real estate world, kickbacks are very illegal and are broadly construed to include “anything of value.”
  • Matching Fees. Watch out for Realtor induced fee matching. Especially if the firm is related to the Realtor’s firm. 

Our Advice

  • DO NOT TRUST your Realtor to make the title company selection for you.
  • NEVER use a title company that is affiliated with another service provider in your transaction.
  • ALWAYS look for an independent title company.

Why would you trust a  Realtor to recommend a title company when they have a huge commission riding on your transaction closing? 

Don’t believe the Realtor  who claims that they get nothing in return for in-house referrals. Realtors receive all kinds of substantial benefits from recommending in-house title firms: Better commission splits with their broker, more referrals, more floor time, better offices, lower rent, and anything else the broker can concoct. Many supervising brokers put extreme pressure on agents to steer clients into their in-house services.

Title companies owned by brokerages do not have to compete on service or price. Since most of their customers are steered to them by trusted Realtors, very few customers ask questions about price. And for the few savvy consumers who do ask, those

firms will typically match the fees of the independent firms. But don’t fall for it. These are companies that were willing to overcharge you in the first place. Worse, their conflicts make these firms very unsavory choices. Consumers are not just overpaying. They are being subjected to terrible conflicts of interests. In addition, these affiliated firms are not just hurting consumers, they are destroying competition in the title insurance industry. If you want to save money, receive truly unconflicted service and do your part to improve competition in this industry, select an independent title firm.

Independent title firms truly compete on service and price. UNLESS they pay kickbacks!

Seek out independent title firms that are not affiliated with Realtors, lenders, builders, attorneys or any other service providers. Then check for enforcement actions against the firm and search their social media for evidence of kickbacks or improper associations with other service providers. We’ve posted many examples on our website about how title firms routinely pay kickbacks to Realtors. Many of these make the local news. Avoid these firms.

 

 

 

Minnesota’s Liberty Title fined $45,000

Minnesota’s Liberty Title was fined $45,000 for allegedly providing “numerous things of value” to a licensed real estate salesperson in exchange for settlement service referrals. Last year the Commerce Department fined Title Smart for allegedly engaging in another kickback scheme and they were fined a similar amount (click here).

The Liberty Title case is significant in the sheer number of infractions (11) and dollars allegedly spent by Liberty Title on this one licensee. What is shocking is that any one of the infractions could have resulted in a serious licensing violation. To see eleven infractions in just one case is over the top and should set off the alarms for regulators all over the country. We believe the DOC was using this case as an example to demonstrate what Liberty was doing with many of their other customers. We have seen evidence of Liberty sponsored events that involved over 300 of their customers. Plus, this isn’t Liberty Title’s first run-in with the Minnesota DOC.

Although the DOC applied a percentage of business referred analysis to this case, we don’t think they needed to. Providing things of value to a licensee who was in a position to send them referrals was probably enough. The fact that this particular licensee apparently increased their referrals to Liberty after receiving these things of value is disturbing. Realtors in Minnesota are fiduciaries and it becomes predatory if their advice to clients is influenced by bribes.

This action is important because title companies provide key services that ensure the integrity of the transaction and consumers rely heavily upon the title company selection advice that they receive from their Realtors or loan officers. Consumers are particularly vulnerable because they do not understand what title companies do, how much they charge and why they are important. Therefore, it is so important that the advice that they receive from their agents and loan officers is free of inappropriate influences that could result in bad service, overpaying and even title claims.
Title companies investigate and examine title and make important title and closing decisions. It is extremely important that their work is completed impartially and not influenced in any way by financial relationships with Realtors, loan officers, attorneys, or builders. Federal law on kickbacks is extremely strict and clear and has no minimum tolerances. RESPA (“Real Estate Settlement Procedures Act”) prohibits the giving and accepting of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” That means that a title company shouldn’t even buy a Realtor a cup of coffee.

Unfortunately, the problem with kickbacks is severe throughout the country and consumers should be on the lookout and avoid all kinds of cozy relationships. Consumers should also be aware that the Realtor lobby was successful in carving out a huge exception to the anti-kickback provisions for affiliated title companies. While it may now be legal for title companies to affiliate with real estate brokers, lenders and builders, we believe that they are still bad for consumers. At the very least such relationships raise all kinds of conflicts of interests that should concern consumers. Do you really want a broker with a 5 figure commission riding on the deal closing influencing the decision making process of the title company?

Our advice to consumers is to Google their state with “independent title company” or “compare (insert state) title companies” and decide for themselves who they feel most comfortable closing. Not only might they avoid conflicts, they might find themselves saving some money too.

Links to Liberty Title’s Enforcement Action (click here)

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.