The 115 Million Dollar Price Fixing Problem
In September 2010, after consulting with representatives from a large local Realtor-affiliated title insurance company, the DOC issued a PressReleaseMNDOC to the real estate industry instructing them to start disclosing seller paid closing fees as buyer’s fees, erroneously claiming that RESPA required it. Not only was the DOC wrong, but their instructions actually violated RESPA because the DOC was directing lenders to incorrectly disclose closing fees. Timed almost perfectly with the DOC’s announcement, the Minnesota Association of Realtors released a new purchase agreement “complying” with the DOC’s very profitable instructions (profitable in that most Realtor members are affiliated with title companies that would now be the beneficiaries of the resulting extra fees). It should be noted that the Minnesota State Bar Association chose not to change its purchase agreement and consumers will likely pay less in closing costs if they use that agreement.
The DOC conducted no meaningful due diligence regarding Minnesota real estate practices prior to issuing its press release other than consulting with title industry executives, who coincidentally benefitted from the resulting extra fees. Had they done even the slightest research into Minnesota’s real estate practices, they would have discovered that Minnesota’s practices actually fall within an exception to the federal law with which they were attempting to comply. Instead, the DOC took the position that the extra fees being imposed on buyers are still “negotiable” because the Realtor Association promulgated an additional form that supposedly allowed buyers to negotiate these fees lower. Unfortunately, their “solution” did not address the problem of wiped-out discounts, nor did it take into account that most buyers are already maxed-out on the allowable amount of seller contributions. For most buyers the addendum was worthless.
When presented with this information and asked for the DOC’s help to repair the mistake, Paul Hanson, the Chief Enforcement Officer of the DOC responded, “Would you identify these Minnesotans that have lost this money. Would appreciate a complete list… We have no complaints about this other than from you.” Despite repeated Data Practices requests, the DOC has refused to fully answer our questions. They claim that they do not know with whom they consulted from the title insurance industry nor who is responsible for drafting the press release in question. The DOC claims that their e-mails are automatically deleted after 6 months rendering much information untraceable. How can a state agency have such a practice in place? Once CAARE uncovered the problem and presented it to the DOC, not only did they refuse to help, they interfered with our efforts to reverse the problem causing our efforts to fail. A CAARE representative flew to Washington DC and obtained HUD’s conditional cooperation to help fix this problem. All they required was that the DOC join them in this effort. The Minnesota DOC refused and gave no reason for their inaction.
CAARE would like to see an investigation into the DOC’s actions that explain how something like this could happen and, more important, how it can be prevented in the future. In addition, we would like to see this unwarranted and incorrect action reversed bringing back the healthy economic dynamics of 100 years of Minnesota real estate law and practice that was eliminated in a seemingly casual and indifferent manner.
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