September 4th, 2014 at 12:35 am
IMPORTANT MESSAGE: RESPA AND MARKETING AGREEMENTS
| Top-producing Long & Foster team facing class-action RESPA suit over alleged kickbacks Court battle highlights potential legal pitfalls in marketing title insurance, settlement services Ken Harney Contributor, February 25, 2013A federal district court’s decision to certify a class-action suit against one of the highest-volume Realtor teams in the country should set off alarms for brokerage firms that have marketing agreements between themselves and settlement service providers, say RESPA legal experts. Not only is the class-action certification ominous in its own right, but it comes on top of indications that the Consumer Financial Protection Bureau is actively probing marketing agreements … Visit this site: ? RESPA Suit for alleged kickbacks and MSAs |
Marketing agreements have become all the rage with mortgage companies and title companies approaching real estate agents with an offer to compensate them if the real estate agent will market their products and services. So, what is a marketing agreement?
A marketing agreement is just what it sounds like. It’s an agreement for the real estate agent (or a team of agents) to market the services of a mortgage company or title company. Typical agent marketing services may include a link to a website from the agent’s website, handing out brochures, joint advertising in newspapers, on billboards, or in trade magazines.
What you need to know about marketing agreements: (1) they are regulated by RESPA (the Real Estate Settlement Procedures Act of 1974), (2) they are complicated to implement and difficult to do in a legally compliant manner, and (3) people will tell you they are legal when they may, in fact, not be.
The headline article above identifies two tremendous risks that accompany marketing agreements: (1) class-action suits and their defense costs, which can bankrupt you; and (2) investigation by the CFPB (the Consumer Financial Protection Bureau) for RESPA violations.
In 2007, a massive investigation into joint venture title companies resulted in the wide-spread shutdown of title companies and the prosecution of real estate agents for violating state real estate license laws when the joint venture title companies turned out to be violations of RESPA—despite assurances from some that they were legal. Marketing agreements are subject to the same pitfalls, only worse. Beginning in 2011, the CFPB has the power to fine violators $25,000 to $1,000,000 per day for violations of RESPA.
RESPA violations are not covered by errors and omissions insurance policies. BHHSCP will not defend or indemnify you if you are accused of violating RESPA because you have entered into a Marketing Agreement. You will be required to defend and Indemnify? BHHSCP for any damage you cause? the Company? by entering into a Marketing Agreement subjecting you and the Company to RESPA scrutiny.
September 4th, 2014 at 12:09 am
We have? seen a significant rise of undisclosed seller credits after a loan approval has been issued.? ? ? In light of the stringent new lending laws, it is imperative? to disclose any and all seller credits early in the process for the reasons described below.
New disclosure rules require that any seller credit must be noted by the appraiser in the appraisal report and documented by an RPA amendment before closing can occur.? ? Often lenders require the credit be fully disclosed in the transaction documents BEFORE? the loan docs can be issued.? ? As such, a last minute seller credit can delay a closing and cause the buyer to be in breach of the RPA.
We have seen the following? scenario occur too often:? Approval is in, ? Buyer removes Loan Contingency, Buyer is? ready? to sign loan dos, HSL/Lender ? asks for a HUD and the lender is apprised for the first time that there is a new credit to Buyer.? ? Subsequently the Lender alerts the appraiser to make a change, and Buyer may? risk a 3-day waiting period and delay imposed by the lender.? The Buyer is then in breach, and Seller? may issue a Demand to Close and cancel the deal.
Agents please? disclose these credits to the lender as soon as they are negotiated.? Waiting? 1-2 days before closing may have negative consequences and cause the Buyer to breach the RPA.
August 14th, 2014 at 9:31 pm
Agents Beware! Some agents and managers have recently been running into problems with a lack of service provided by outside escrow companies, other than Pickford Escrow. In one situation, the escrow officer refused to prepare an amendment to a purchase agreement at the agent’s instructions. The escrow officer claimed that the subject matter of the amendment did not pertain to the escrow file. Yet, the subject matter did pertain to the purchase agreement.
In another situation, the escrow officer refused to directly pay our salesperson’s corporation, even though our branch manager gave escrow written authorization to cut the check from our commission. The escrow officer erroneously claimed that it was “illegal” for escrow to cut the check.
Aside from our own Pickford Escrow, other escrow companies are independent companies, and we cannot dictate to them what to do and how to do it. From a legal standpoint, these other companies do have the right to decide to provide certain services and not to provide other services as in the above situations. However, if you are not dealing with a reputable company, some of their arbitrary decisions may cause problems for one of your transactions, including a delay in the cutting of your commission check!
In multiple offer situations, buyers and their agents are, quite understandably, often unwilling to put the selection of the escrow company at issue. However, as a buyer’s agent, if you are unfamiliar with the escrow company that the other side wants to use, or if you have had a bad experience with that particular company, you are very well-advised to inform your client accordingly.
May 24th, 2013 at 7:50 pm
As you know, in almost any MLS transaction, your commission is set by the offer of cooperation made by the listing agent. Pursuant to the rules of the MLS, by presenting an offer, you are accepting that compensation and a binding contract is created. Unfortunately, despite that fact, and the fact that discussing our commission in the client’s contract documents violates our duties, we often see listing agents try to get a discount as part of a counter offer. When faced with this issue, the obvious question is what to do. Can I refuse to discount? What if doing so negatively affects my client? These, and many other questions, illustrate how difficult this issue can be.
So, when faced with a request for a discount in your client’s contract, your response may take numerous steps. The first thing you need to decide is whether you are willing to discount. Remember, if your client has already written an offer for the property, you do not have to. You have an enforceable contract. But, if you agree to the discount, you should simply memorialize the new arrangement in a Cooperating Broker Compensation Agreement (CAR Form CBC). That takes the issue outside the clients’ contract and solves your problem.
On the other hand, if you do not want to discount, you should address the counter as follows: (1) First, tell the agent you already have a binding MLS contract and that including commission in the RPA is against the rules. If that works, great. If it doesn’t then (2) contact your manager, who should call the listing broker. Hopefully, by going up the chain, you will have better luck. If they still insist then (3) let it go and we will make a board claim after the fact. Remember, you do not want to cost your client the property by refusing to cooperate. So, after making the above attempts to have the listing agent do the right thing, let the deal close. You are serving your client and will not be waiving any rights. I have seen many board claims where an agent was awarded his full MLS commission after closing to save the client’s deal. I can’t promise it will happen in every case, but it will in most. Most boards, who are realtors just like you, do not like agents violating the rules in this way.
So, try to keep your commission out of the RPA if possible. You have an MLS contract and need nothing else. But, if the listing agent insists, and you can’t get them to do the right thing, then close the deal and we will go after your commission later.
As always, contact your manager with any questions you may have and they will contact the Legal Department if necessary
May 10th, 2013 at 7:49 pm
At last week’s CAR meetings in Sacramento, one of the main subjects making the rounds was pocket listings. Now, as you know, we have discussed pockets lately since they have become so prevalent in this market. If you will recall, our concern was making sure that your seller understands the impact of not putting a property in the MLS and how that might affect their sale or sale price. At CAR, as you can imagine, they had similar concerns, along with a desire to make sure that when handling a “pocket,” you follow the MLS rules. After all, and as you know, the MLS rules require that, without instructions to the contrary, all listings must be submitted to the MLS within 2 days of signature. The only way to hold a property out of the MLS, without violating the rules, is to have an instruction signed by the seller. Unfortunately, in a good number of our “pockets,” no such instruction exists. As a result, in addition to the fiduciary duty issues we have discussed in the past, we are also faced with violations of the MLS rules which could result in unwanted discipline.
As you will recall, when discussing pockets before, we identified CAR Form SEL, the “Seller Instruction to Exclude Listing From the Multiple Listing Service or Internet”, as a good tool in this regard. In truth, when looked at in detail, that form can solve both of the problems identified above. First, paragraph 5 is a “Seller Opt-Out – Exclusion of Property From MLS.” That paragraph specifically states that “Seller advises Broker that Seller elects to exclude the Property from the MLS.” As a result, by checking the box in front of this paragraph (which is required to make the instruction applicable), you have solved your MLS problem. You have a written instruction from your seller.
As importantly, the SEL discusses most of the issues arising from a pocket that have to be discussed with the seller. In paragraph 4, the document states as follows: “Seller understands and acknowledges that if this option is checked (a) real estate agents and brokers from other real estate offices, and their buyer clients, who have access to that MLS may not be aware that Seller’s Property is offered for sale, (b) Seller’s Property will not be included in the MLS’s download to various real estate Internet sites that are used by the public to search for property listings, and (c) real estate agents, brokers and members of the public may be unaware of the terms and conditions under which Seller is marketing the Property.” In other words, the SEL sets forth the consequences of a pocket very clearly and solves most, if not all of our fiduciary duty problems. The only additional thing I would like you to discuss with a seller is the fact that with less people seeing the property, it is possible that the seller will get less for it. After all, the broadest marketing possible would theoretically increase our chances for the highest offer.
I raise this issue again because it was such a big deal with CAR last week. Obviously, if they are so concerned, we will probably see more enforcement by our Boards of Realtors and may see an increased awareness of these issues by our clients. So use the SEL. It is another good form from CAR that will help you stay out of the trouble that could be caused by pocket listings.
As always, contact your manager with any questions you may have and they will get the Legal Department involved if necessary.
