Anyone who knows me knows that I attempt to educate consumers about the subtle commonplace real estate practices that seem innocent on the surface, but actually are detrimental to the best interests of the consumer. In an effort to inform those attempting to mislead consumers or unfairly profit from these practices know that the Consumer Financial Protection Bureau (“CFPB”) is watching you, I offer the following recent actions taken by the CFPB:
Steering Consumers to a Title Insurer.
The CFPB recently took action against a real estate settlement services provider, Meridian Title Corporation, for steering consumers to a title insurer owned in part by several of its executives without making disclosures about the affiliation between the businesses. The CFPB found that Meridian routinely selected Arsenal Insurance Corporation, a company owned in part by several of the referrer’s (Meridian) own executives, as the title insurance underwriter for its customers. When it selected Arsenal, the CFPB found that Meridian was able to keep EXTRA MONEY beyond the commission it would normally have been entitled to collect, based on an understanding that Meridian would select Arsenal as the title insurance underwriter.
A company like Meridian that receives anything of value pursuant to an agreement or understanding that business will be referred to an affiliated business like Arsenal must generally disclose its relationship to the consumer, in order to avoid a violation of the Real Estate Settlement Procedures Act. Instead of litigating these unfair and illegal practices, Meridian entered into a consent order with the CFPB that it will stop this practice (illegal and detrimental to the consumer) and pay up to $1,250,000 in redress to consumers.
Moral of the story — your practices are being observed.
Mortgage Business Referrals.
In a separate action, the Consumer Financial Protection Bureau took action against Keller-Williams Mid-Willamette, an Oregon real estate broker and ReMax Gold Coast Realtors, a real estate broker in California, for accepting illegal kickbacks for mortgage business referrals. Writers comment: yet another example of how the referral the consumer receives is not about benefitting them, but actually benefitting the realtor — be informed!
ReMax Gold Coast and Keller Williams Mid-Williamette are real estate brokers that work with consumers seeking to buy or sell real estate. Brokers or agents often make “recommendations” to their clients for various services, such as mortgage lending, title insurance or home inspectors. One of the many things the Real Estate Settlement Procedures Act prohibits, is brokers and agents from exploiting consumers’ reliance on these recommendations by accepting kickbacks or payments in return for referrals to particular service providers.
What did the real estate brokers do that “brought down the thunder” on them? Well, the CFPB investigation found that the agencies accepted illegal payments for referrals. Both companies had marketing service agreements, lead agreements, and desk license agreements (paying for space in the broker’s office) with the mortgage broker, which were, in whole or in part, vehicles to funnel money to the brokers for their referrals.
Mortgage Fee Shifting.
The CFPB also took action against a former Wells Fargo employee for an illegal mortgage fee-shifting scheme. The CFPB found that from at least November 2013 to February of 2015, the loan officer had an arrangement with an escrow (title insurance agent) company, New Millennium Escrow, which allowed the employee to manipulate the prices his customer would pay for escrow services. The CFPB’s investigation found that, based on direction from the employee, New Millennium would reduce its fees for certain customers and make up for its loss by adding fees to loans for other customers. This resulted in an $85,000 fine to the employee and a one-year prohibition from working in the mortgage industry.
So, realtors, brokers and lenders, you had better think long and hard before you refer your consumer to one of your “pals” or “partners,” especially if they are charging fees that are duplicative and unnecessary (such as conveyancing fees, document preparation, satisfaction “tracking” fee, and other such excursions into the consumer’s wallet) as there are still active enforcement agencies (the CFPB and the Pennsylvania Office of the Attorney General) looking at your referral practices.
I hope the $175.00 “conveyancing” fee was worth it.
Andrew J. Monastra, Esquire is an associate in the law firm of Wolf, Baldwin and Associates, P.C., which has offices in Pottstown, West Chester, and Reading. He has represented consumers and businesses in real estate transactions for over 23 years, and he is the owner of Heartland Abstract, Inc., an independent title agency located in Pottstown which does not charge junk fees. Their website is www.heartlandabstract.com. Mr. Monastra may be reached by calling 610.3237436, or by e-mail at email@example.com.