Category: News

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.

Builders Trap Buyers Using Fake Discounts

In this letter to HUD we point out the problems with what the builders are doing as well as Affiliated Business Arrangements (AfBA’s) in general.  And we do so from a different perspective – from that of the consumer.  In fact, CAARE may be the only consumer group that chimed in among the thousand or so comment letters submitted by industry participants.  

AfBA’s in real estate are not like One Stop Shopping at Target, yet the industry commonly disarms the public by calling these dangerous relationships just that.  We believe that a more appropriate name for these widely used arrangements should be “One Stop Robbing,” or “Sophisticated Captured Audience Marketing” (S.C.A.M.).  Our letter explains why these arrangements are so bad for the consumer and our economy.

But what builders are doing in order to force consumers to use their affiliated mortgage and title services is reprehensible.  And that is the main topic of HUD’s request for comments on their Advanced Notice of Proposed Rule making.  Sure consumers pay higher closing costs and interest rates when they are steered into builders’ AfBA’s.  But what about the loss of safeguards that can only come from impartial decision makers?   If the builder owns the title company can they really be expected to call out a major title defect on their property and cancel their own closing?  What type of confidence do such arrangements in still in the residential real estate market?

In our letter we discuss the problem and show just how far home builders will go to trick consumers to buy their houses.  We even attach as exhibits some of the secret solicitations some of the builders sent directly to the home buyers’ Realtors seeking to bribe buyers’ Realtors with offers of bonuses (on top of their commissions) as high as $4000 and even a free Lexus.  We also point out the hypocritical view the National Association of Realtors takes by comparing the letter they wrote last month to a cite they include in their letter to HUD this month.  Can they really be trusted to provide our media with housing statistics if their own President can’t get her facts straight?

If you want to help by either volunteering or donating much needed support, please e-mail me or click on the donate button on our website in the upper right hand corner.  We are all volunteer non-profit 501(c)3 charity organization that gets all its funding from the public.

Just click on the image below to read the letter.  Thanks!

 

A FREE Lexus and $5000 Bonus? Enough!

Lennar promised a $5000 bonus and a free Lexus to the Realtor who refered them the most business.  The problem is that this offer was secretly sent out to buyer’s agents.  This offer is only being sent to Realtors and is a reward for the Realtor’s loyalty to them...   But wait a minute.   Realtors working with buyers owe their loyalty to their buyers, not Lennar…  Isn’t that bribery?

We believe that it is wrong and possibly illegal to offer money (or a Lexus) to the agent of the buyer without first obtaining their buyer’s consent.  In fact, in the agency law books (see Restatement of Agency 2d)  that we’ve looked at, it would seem that there is legal precedent indicating that this money really belongs to the buyer, not their agent.  In other words, every bonus and every Lexus given out by Lennar really belongs to the buyers, not their agents.

How many buyers if told that they could choose between reducing the purchase price of their house by $5000 and a Lexus would instead choose to pay this to their agent as a bonus?   We don’t think very many.  That leads us to believe that this money is not being disclosed, or not being disclosed properly as the buyers’ money. 

We’ve reported this to the Minnesota Commerce Department, but they remain silent on this issue.  We are looking for suggestions on how best to alert consumers to this very important issue.  Please help.

Here’s the ad sent out ONLY to Realtors:

Great Response to RESPRO Article

Great article by the Ohio Independent Land Title Association on the comment letter submitted by RESPRO. In CAARE’s eyes, RESPRO is an anti-consumer organization dedicated to proliferating controlled business arrangements which cause consumers to be stripped of unbiased decision making in the determination as to the quality of their transaction and it causes consumers to overpay for those stripped down services. Here’s the blog post: “On August 1, 2011, RESPRO submitted their written testimony concerning the Credit Risk Retention Rule found in Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). This is the same subject known by normal human beings as the Qualified Residential Mortgage (QRM) rule. RESPRO’s target in the QRM proposal is the 3% “points and fees” threshold that federal regulators propose to adopt as part of the QRM definition in their Risk Retention regulation. RESPRO says the rule unfairly discriminates against the affiliated business model to the detriment of consumers and the mortgage marketplace…”

Here’s the rest of the article (click here).

Builder Bribes?

What is bribery and does it exist in residential real estate? You be the judge.

Guilty of Bribery:  As taken out of context from a criminal commercial bribery statute we were able to come up the following general definition as to what typically constitutes bribery:   Whoever corruptly offers, gives, or agrees to give directly or indirectly, any benefit, consideration, compensation, or reward to any agent or fiduciary of a person with the intent to influence the person’s performance of duties as an agent is guilty of commercial bribery.  The same is true for those who receive a bribe.

If a builder were to secretly offer Realtors who represent buyers an extra Five Thousand Dollars ($5,000.00), would this constitute a bribe?   Do you think secret money being offered to buyer agents is intended to influence the agents’ advice and guidance in selecting a builder?   If you were a consumer and found out that your Realtor was being offered $5,000 per transaction (for up to five transactions) from a particular builder, how would you feel?   And who does that money really belong to, the Realtor or the buyer?  Here’s a typical advertisement from a national builder sent out to Realtors and one from a local builder:

lennarbonus

khovnanianhomes

 

 

The American Land Title Association (ALTA) has buried our debate

Last September CAARE was contacted by an ALTA (American Land Title Association) story writer to participate in a point / counterpoint on the issue of Affiliated Business Arrangements.  After months of work and after the project was ready to go to print, ALTA pulled the story!   Neither we nor the RESPRO representative (Marx Sterbcow) chosen for the “counter point” were permitted to see the other’s answers.   We can only speculate that we may have done too good of a job….

ALTA as stated on their website, “is the national trade association and voice of the abstract* and title insurance industry. ALTA® members search, review and insure land titles to protect home buyers and mortgage lenders who invest in real estate…ALTA® members advocate safe and efficient transfer of real estate and insist on high standards when searching land title records and preparing insurance documents.”  So to us, this story seemed to be a perfect fit for both ALTA’s mission and ours.

What better way to “advocate for safe and efficient transfer of real estate” than to remove conflicts of interests and inappropriate influences that affect the unbiased examination of title and disbursement of funds?  What better way to “protect home buyers and mortgage lenders who invest in real estate,” then to make sure home builders, Realtors or mortgage lenders are not in a position to determine the insurability of their own files?    To us, Affiliated Business Arrangements are an important reason why the real estate industry COLLAPSED.   To us, this debate raised some of the most important issues of this decade.

We took on this project as a public service to those in the industry and to the consumers whom we represent and we did what we think was a great job explaining the problems and hazards of Affiliated Business.  After taking this project to completion (SEE ATTACHMENT) and investing many of our resources, ALTA’s Board of Directors pulled the story in March citing that this story was likely to increase the already large rift that existed between members who disagreed on the topic of Affiliated Business Arrangements. 

After examining the biographies of the current Board Membership it would appear that this decision may have had more to do with its Board’s interests in burying the issue, then preventing a rift.  Most of ALTA’s current Board are proponents of this anti-consumer practice called Affiliated Business.   We believe that Affiliated Business Arrangements cannot be defended as a legitimate business model any more than could a prospectus to start a train robbery business.  If we’re right that our points were too convincing and that’s why our story was pulled, then shame on ALTA.   To let this article go to press, would have been to admit that Affiliated Business is a bad thing.

With this news feed we ask all current ALTA members to examine whether ALTA truley represents their interests by burying this story.   And whether you are a member or not, if you think that this story should be run, then please consider writing to the current President of ALTA, Mark Winter (mwinter@stewart.com ) to let him know how you feel.

Why RESPA Needs to be Fixed – an Example

For a business intent on paying illegal kickbacks it is only a matter of performing a cost benefit analysis to determine that it is a profitable proposition to violate the law.  The cost of a potential enforcement action is far outweighed by the financial benefits of violating it.  For example, in 2007 First American Title Insurance Company was fined $500,000 in Minnesota for operating what the Minnesota Department of Commerce said were “sham title agencies that provided illegal referral kickbacks to local real estate agents, mortgage brokers, developers and other industry players”  (click here for the Star Tribune article – article has been removed by Star Tribune).

First American was forced to shut down their remaining 35 agencies in Minnesota.  However, those agencies had operated for years likely making tens of millions of dollars.  Their individual closing agents had developed close ties with their referrers, which meant that First American could continue to benefit from their activity long after their agents were shut down.  And for competitors who complained about the conduct, they were likely to be boycotted by the Realtors and other real estate professionals who were forced to be shut down.   First American gained a competitive edge.  For the small price tag of $500,000, the violation was well worth it. 

The Minnesota Commerce Department did not order First American to make restitution to consumers either.  The department decided it was better to negotiate an end to the long-standing practices rather than get tied up in litigation that could take years, said Paul Hanson, the department’s chief investigator.  In other words, the Commerce Department felt a slap on the wrist would suffice.  In a search of the Commerce Department enforcement actions, the First American case has vanished from their site. 

If RESPA had a 6 year statute of limitations, the Minnesota Department of Commerce and HUD could have exacted a more meaningful fine and restitution that would likely have added up to tens of millions of dollars instead of $500,000.

Sellers

Consumer tips and tools for sellers. 

How to Negotiate a Real Estate Commission.

Negotiate Both Parts of the Commission. 

Offer Fee Directly to Buyer.  Require your broker to share their commission with buyer brokers AND unrepresented buyers. This is legal in all but 10 states and a practice that is encouraged by the United States Department of Justice (click here for a link).

Consumer Friendly Listing Contract. Use this as a guide to negotiating your own contract or directly with your Realtor. However, some states may have certain required disclosures and terms and in that case consider using this as an addendum to the contract that your Realtor provides to you. 

Consumer Friendly Listing Clauses. Consider adding some of these clauses to the listing contract that your Realtor provides to you.

Open Houses Do NOT Sell Houses.  Read this article before you decide to allow your Realtor to hold open houses.  Open houses are for helping Realtors find buyer clients, they do not sell houses.

Pocket Listings. Do not EVER agree to this practice because it maximizes the broker’s commissions (often doubles them) while severely impacting seller’s ability to sell house at best price and terms. 

LIST of Top Ten Worst Practices.  Be aware of these bad practices.

Save $300. This simple negotiating tactic should save you $300 or more.

Articles

Survey – Real estate attorneys – See what attorneys think about dual agency and controlled business arrangements (“one stop shopping”).

Open Houses Do NOT Sell Houses.  Read this article before you decide to allow your Realtor to hold open houses.  Open houses are for helping Realtors find buyer clients, they do not sell houses.

Avoid Dual Agency.  Consumers top two reasons for hiring Realtors is to help negotiate price and terms.  Realtors are prohibited from doing both in a dual agency.

Designated Agency. Is it Fraud?

“One Stop Shopping”  Do not ever use services that are affiliated with your Realtor, brokerage or builder firm.  The service industries designed to provide safeguards to ensure healthy residential real estate transactions are now actually owned and run by the firms which have huge stakes in the transaction such as builders, Realtors, and lenders.