Agents and Broker Named in NHD Kickback Class Action Lawsuit

On November 5, 2015, a class action lawsuit was filed against a California real estate broker Paul M. Zagaris “PMZ”, five of his top producing real estate agents, and two natural hazard disclosure companies, Valley NHD and DisclosureSource for violation of California Civil code 1710 (3), California Business and Prof. Code 17200, fraud and others.

The plaintiffs in this case represent a Class of people that have employed the services of PMZ during a period of time to buy or sell a residential home in California in which a natural hazard discourse (NHD) report was provided by Valley NHD.

You can view the actual complaint here:

The plaintiffs allege that the defendants breached their fiduciary duties by earning secret profits (or kickbacks) on NHD reports while representing the plaintiffs and other members of the Class.  The plaintiffs also allege conspiracy, aiding and abetting each other’s breaches of fiduciary duties, fraudulent concealment, violating California’s unfair competition law, constructive fraud, and unjust enrichment.

So what exactly does this mean you might ask?  Simply put, California law prohibits any real estate agent or broker from accepting any undisclosed form of payment while acting as a real estate agent for a consumer.  The plaintiffs in this claim are alleging that PMZ wanted to receive kickback money from DisclosureSource, but mindful of the law against paying and receiving such kickbacks, PMZ and DisclosureSource conspired with each other and PMZ formed another company called “Valley NHD” through which DisclosureSource could funnel undisclosed funds to PMZ.

The plaintiffs claim that DisclosureSource would pay PMZ $48.95 for each NHD report and that PMZ demanded all of his real estate agents and clients order NHD reports from Valley NHD/DisclosureSource.  To make the plan look legitimate, DisclosureSource would sell its NHD reports to PMZ for $40 per report.  PMZ would put the name of “Valley NHD” on the report and submit a bill to escrow for $88.95.  Without doing any work, PMZ would net $48.95 per real estate transaction.  The plaintiffs allege that PMZ never advised its clients of the secret kickback scheme and they were damaged by the defendants’ actions.  The plaintiffs are seeking damages for breaches of fiduciary duties, punitive damages, and attorney fees.

Just like Title reports, NHD reports are settlement services and under the oversight of CFPB. Any strategy that benefits brokers and or agents in exchange for business could also be scrutinized as a possible violation of RESPA.

The CFPB does monitor these class action lawsuits so maybe they will weigh in on this situation.

What do you think of this new class action lawsuit? We’d love to hear from you.