Re/Max In California Implicated in RESPA Violation Case
by Sharon Hassler, President, Go Get Experts
More tips on RESPA law, guidelines and violations for real estate agents and loan originators from former HUD investigator and RESPA expert, Dr. Gary Lacefield.
This week, Dr. Gary Lacefield discusses a pending lawsuit implicating a Re/Max branch in California and United Title Company, alleging they violated RESPA rules by fostering kickbacks, constructive fraud and unfair competition.
View the RESPANewsUpdate.com video here. This educational video and the RESPANewsUpdate.com website were created by WebCasting.com, based in Dallas, Texas. This video is provided for free, compliments of Premier Mortgage Funding, Inc.
For more about Dr. Lacefield, visit RiskMitigation.net or GoGetRealEstate.com/Get/GLacefield.
RE/MAX Implicated in California RESPA Kickback Case
A California RE/MAX branch and United Title Co. have been given the opportunity to by defendants in a class action lawsuit alleging RESPA kickback violations.
The plaintiffs in the lawsuit, consisted of all those persons who sold or purchased a home in California, using RE/MAX as their real estate agent and/or broker, and who were induced by RE/MAX to use the title insurance/escrow services of United Title.
The case revolves around the allegations of lead plaintiffs Felix Rodriguez, Linda Rodriguez, Laura Willis, Rosario Villareal, Susan Villareal and Ruth Warren, who allege that United Title Co. and RE/MAX violated RESPA rules by fostering kickbacks, constructive fraud and unfair competition.
Under both federal and California law, it’s illegal for title insurance and escrow companies to pay “kickbacks” or other compensation to real estate agents in exchange for the referral of business. This is because such payments needlessly and unethically escalate the cost associated with the selling and buying of homes.
The plaintiffs alleged that “Despite their knowledge of the laws prohibiting this practice, the defendants instituted company-wide procedures to facilitate the continued surreptitious giving and receiving of kickbacks and other compensation for the referral of title insurance and escrow services. Defendants have required California home sellers and homebuyers to unknowingly pay additional and higher amount in home sales and refinancing transactions in order to fund the unlawful kickbacks and referral fees.”
The lawsuit, filed by San Diego attorney Kevin C. Young, estimates thousands of California homebuyers to “have been victimized by defendants’ illegal kickbacks. This illegal practice has been engaged in by defendants for years, resulting in millions of dollars of damage to California citizens.”
One of the most important consumer protections in RESPA is “the elimination of kickbacks or referral fees that tend to increase unnecessarily the costs of certain settlement services…” Specifically RESPA states, “No person shall give and no person shall accept any fee, kickback or thing of value pursuant to any agreement or understanding … that business incident to or part of a real estate settlement services, shall be referred to any person.”
RESPA allows certain types of payments to be made where affiliated business arrangements are involved, or if specified disclosures are made to the seller and/or buyer of the residents, but there must be a disclosure of the existence of said affiliated business arrangement, and a written estimate of the charge or range of charges generally made by the provider of services to which the seller and/or buyer is referred.
However, the permissible payments can only be a “return on the ownership interest or franchise relationship” - and payments cannot be for making referrals.
The lawsuit alleges that RE/MAX and the other defendants broke this rule.
The California Insurance Code also prohibits title insurance and escrow companies from paying any compensation for referrals of business, defined as including payment of business expenses such as rent, furniture, copies, facsimile machines, telephone services and equipment, as well as unreasonable expenditures for food, beverages or entertainment.
When the Rodriguez’s entered into an agreement to sell the residence, the RE/MAX sales agent informed them that they should use United Title for the purpose of providing escrow services.
The law suit states that “Solely because of the sales agent’s urgings, the Rodriguezes agreed to use United Title for those services.” And “At no time during the transactions related to the sale of the residence did the RE/MAX sales agent disclose to the Rodriguezes, nor did they know that United Title would pay a “bonus” to RE/MAX for the sales agent’s successful referral of its services.” The Rodriquess later sold the home to the Willis’.
“The RE/MAX sales agent told Willis she should use United Title for the purpose of obtaining title insurance for the property, and to provide escrow services related to the purchase of the property,” the lawsuit alleges. “Solely because of that sales agent’s urgings, Willis agreed to use United Title for those services.
“When Willis refinanced the property on May 11, 2004, she again used United Title to provide title services, pursuant to RE/MAX’s recommendation,” the lawsuit states. “At no time during the transactions related to the purchasing and refinancing of the residence, did the RE/MAX sales agent disclose to Willis that United Title would pay a ‘bonus’ to RE/MAX for the sales agent’s successful referral of her services.”
The same basic theme has repeated itself with all the defendants, the lawsuit states.
“Pursuant to a pre-arranged agreement between United Title would make a payment to RE/MAX for each referral of a home seller or homebuyer it received. RE’MAX would then give a portion of this referral fee to the sales manager for the RE/MAX sales agent who made the referral, and that manager would give a payment to the sales agent,” the lawsuit states. “Plaintiffs believe that United Title paid a kickback to RE/MAX for its sales agent’s referrals of plaintiffs.”
Plaintiffs also believe United Title would also give non-monetary compensation to RE/MAX for the referral of home sellers or buyers, the lawsuit states. This includes paying for RE/MAX’s air-conditioning, rent, repairs, business expenses and office equipment and for parties, trips and gifts to RE/MAX’s owners, officers and employees.
Furthermore, RE/MAX “encouraged” its sales agents to use the services of United Title, the lawsuit states. “In fact, RE/MAX actively insisted that its sales agents attempt to have home sellers and homebuyers agree to use United Title for all title insurance and escrow services. However, RE/MAX did not encourage its sales agents to inform home sellers and homebuyers of the relationship between defendants, or to inform them RE/MAX would receive a kickback, referral fee or other compensations if they used the services of United Title.”
After the purchase or sale of the homes had been completed, defendants allegedly continued to conceal their agreements regarding the payment of kickbacks, referral fees and other compensation for the referral of title insurance and escrow services.
“Plaintiffs first learned of the agreements and of the damage caused to them by the undisclosed kickbacks, referral fees and other compensation, within the last year,” the lawsuit states.
Plaintiffs believe that the defendants’ secret kickback or referral fee arrangement has been in existence for at least five years where thousands of California home sellers and homebuyers have been persuaded by RE/MAX to use United Title so RE/MAX can continue to receive secret kickbacks and referral fees.
As a result of the homeowners reliance on RE/MAX to steer to United Title, plaintiffs allegedly were damaged by having to pay higher amounts for title insurance and escrow services.
The lawsuit further alleges, defendants internationally and fraudulently concealed material facts know to them, with the intention of depriving plaintiffs of their right to use lower-priced title insurance and escrow services in connection with the sale and/or purchase of their homes with the intention of causing economic injury to plaintiff” and ask for “punitive damages be imposed upon defendants, in an amount sufficient to punish and/or make an example of defendants.”
Plaintiffs further allege “defendants’ conspiracy has harmed plaintiffs and continues to harm the public by needlessly inflating the closing costs associated with purchasing a home … and injures competing businesses which offer title insurance and escrow services.”
Plaintiffs are asking for an award of damages equal to three times the amount of fees the homeowners paid to defendants for settlement services related to the purchase of their homes, and an injunction preventing defendants from giving future kickbacks or referral fees, and failing to comply with disclosure requirements of affiliated business arrangements.