In a previous post, RE-Insider called into question the legality of brokers renting out desks in the office and asked for reader examples of the “Rent-a-Desk” policy in practice. We received many examples; the following is an email exchange with one of our RE-Insider readers. Please note, company names provided by the reader have been omitted until RE-Insider can verify the information. We feel that this continues to be a very big issue in the industry and we’d appreciate your feedback.

My previous brokerage, (name omitted) has an “in house lender.” They provide the office space and push the agents to use that lender and in exchange the lender splits their profit with the office.

What we would like to know:

1. Did the real estate brokerage offer the space/desk to all other Home Mortgage and or Home Warranty Companies before leasing the space?
No, they interviewed several lenders and went with the one who would give them the most $.

2. Do the rental charges exceed the actual square footage cost of the brokerage’s rent cost?
They incorporate the “rent” in what they get back from the lender

3. Does the Real Estate brokerage favor its “tenants” in providing access to the agents? Does the Real Estate brokerage provide the same access to agents to other Home Warranty and Home Mortgage companies?
The “in house” lender speaks at each office meeting and is presented as “part of the team.” Other lenders are not allowed in the office to speak.

4. Does the Real Estate brokerage favor its “tenants” in allowing them to participate in company events while preventing or discouraging other Home Warranty and Home Mortgage companies from participating?

5. Does the Real Estate brokerage encourage their agents to use the services of the “tenants,” or does the broker make clear that the agents may use the Home Mortgage company or Home Warranty company of their choice?
No, the brokerage itself does “profit sharing” with the agents so they encourage the agents to use the in house lender in order to increase the office profit and thus give kickbacks to the individual agents.

Please continue to share your information and help us in our goal to bring the real estate industry into full legal compliance.

On Monday, July 11, HUD announced that they had reached a settlement with Fidelity for RESPA violations stemming from TransactionPoint. In signing the agreement, Fidelity denied all claims against it but agreed to settle in exchange for HUD halting any continued investigation. So while the HUD investigation into Fidelity may be case closed, the question needs to be asked: are brokers who accepted the TransactionPoint payments out of the woods?

In a word, no. Nowhere in HUD’s five-page agreement with Fidelity does it appear to provide any immunity against possible future prosecution for any and all brokers who used TransactionPoint. Protection against future prosecution is spelled out for any Fidelity action, but not for any brokers who may have been identified as a result of the investigation.

Now, with RESPA enforcement moving from HUD to the Consumer Financial Protection Bureau (CFPB), it is certainly possible, if not probable, that the new agency will want to come out of the gate making a big splash. Could the potential investigation of hundreds of brokers be that initial push that clearly demonstrates the CFPB’s intent to clean up the industry?

Has this agreement left brokers holding the bag for any further potential violations of RESPA? One Southern California broker told RE-Insider that they were indeed nervous about possible prosecution resulting from using the TransactionPoint software platform.

Back in November 2010, Fidelity enticed brokers to use TransactionPoint by actively marketing it to brokers, encouraging the use of its pay-per-click system in settlement services as a way for the broker to generate revenue. They assured brokers that the software platform had been vetted by lawyers and was RESPA-compliant.

Fast forward to June 2011. Fidelity sent a memo to brokers alerting them that Fidelity would no longer be making payments for using TransactionPoint because HUD had advised them that the fees paid to brokers might be a violation of RESPA laws. However, Fidelity admitted no wrongdoing and vowed to fight the investigation.

This week, after agreeing to pay the $4.5 million dollar fee, Fidelity vowed to “terminate any arrangement involving the payment of fees to any real estate brokers for use of the TransactionPoint platform.”

RE-Insider would love to get your take on what’s going to happen next. Do you know any agents or brokers who are worried about what might come next?

Please let us know.

RE-Insider is investigating what may be the “latest” real estate kickback trick. It seems that at least one Real Estate service provider is renting space — a desk — from a real estate broker. The owner of the real estate company becomes a landlord and the service provider is a tenant. Is this practice a…

It seems that some people never learn. After last year’s suspension of foreclosures due to suspicious signatures and questionable paperwork, it seems that banks and mortgage processors are at it again. Employees are still signing documents that they haven’t read and using fake signatures as a way to speed up the foreclosure process – a…

What Can this Mean for Brokers?

RE-Insider was the first to question the legality of Fidelty’s TransactionPoint software last year in June. We continued to ask questions in December. And last month, we revealed that Fidelity suspended all payments to brokers made under their Real Estate Service Provider Access Agreements because of potential alleged RESPA violations.

Now HUD has taken decisive action and the title company is on the hook for a whopping $4.5 million in penalties. Fidelity has also agreed to cease certain TransactionPoint practices immediately. Here’s what HUD announced:

The U.S. Department of Housing and Urban Development (HUD) announced an agreement with Fidelity National Financial, Inc. (FNF) to settle allegations the title company paid real estate brokers and other settlement service providers improper kickbacks or referral fees in violation of the Real Estate Settlement Procedures Act (RESPA).

HUD claimed FNF and its affiliates and subsidiaries engaged in a widespread and years-long campaign to pay real estate brokers kickbacks for the referral of real estate settlement services, including home warranties and title insurance. (Read the actual Full Settlement PDF)

“This agreement should be a signal to others that these business practices won’t be tolerated,” said Acting FHA Commissioner Robert Ryan.

Although HUD is settling with Fidelity, it is not granting immunity to the brokers that accepted the kickbacks from TransactionPoint, as far as we can tell.

Where does this leave Fidelity’s brokerage partners? These professionals could face further prosecution from HUD or the Consumer Financial Protection Bureau (CFPB), when they take over RESPA enforcement on July 21.

Did Fidelity tell HUD the names of the brokers who accepted TransactionPoint payments? Will these brokerages have to wait and see which enforcement agency comes after them? RE-Insider ponders if, based on this precedent, individual agents and brokers may be looking at three times the amount received plus damages and attorney fees.

We also have to wonder whether brokers are looking to Fidelity for the legal help and money to cover the damages caused. Did Fidelity say that TransactionPoint access fees were in compliance with RESPA? What is Fidelity saying now?

This may be only the beginning of a nightmare of unimaginable size for the real estate professionals who used the TransactionPoint service and received access fees.

We’d like to hear your thoughts.

Via the Los Angeles Times
By Kenneth R. Harney

In their suit, the plaintiffs alleged that American Home Shield violated federal law by paying kickbacks to realty brokerage firms and agents for promoting warranty policies to their customers. American Home Shield denies any wrongdoing.

The settlement of a major class-action suit is shedding new light on a controversial real estate practice that home buyers and sellers typically know little about: fees paid to realty brokers and agents for promoting home warranty policies.

The case involves potentially thousands of buyers and sellers who bought warranty coverage from American Home Shield Corp. between May 2008 and March of this year. American Home Shield is the dominant player in the home warranty field, with sales of $657 million in 2010, according to the company. Home warranty policies offer repairs and replacements for owners when specified home systems and appliances malfunction.

Attorneys representing the plaintiffs say as many as 500,000 consumers may be members of the class, though neither they nor American Home Shield would speculate on how many ultimately will file for and receive cash from the settlement.

In their suit, the plaintiffs alleged that American Home Shield violated federal law by paying kickbacks to realty brokerage firms and agents for promoting warranty policies to their customers. The Real Estate Settlement Procedures Act prohibits payments for referrals of “settlement services” in connection with most mortgage transactions. It also bans the giving or receiving of fees or other compensation when no substantive services are rendered.

American Home Shield denied any wrongdoing in the settlement, and said it sought to limit its exposure to litigation costs by resolving the dispute. The complaint, filed by homeowners in Alabama, involved payment of a $524 fee at closing for a one-year home warranty from American Home Shield. A portion of that amount allegedly was paid to the realty agent by American Home Shield.

Realtors and consumer groups say payments like these are rarely disclosed to buyers or sellers but have been common in the industry for years. Typical warranty policies cost from $400 to $500; fees to realty brokers and agents range from $60 to $90. Warranty companies took in an estimated $1.5 billion in sales during 2009, according to Warranty Week.

The fees have been controversial within the real estate brokerage industry itself, with some companies refusing to participate in payment plans, while others defend the practice. Glenn Kelman, chief executive of Redfin, a national online brokerage, said if his firm finds that any agent “accepts gifts or payments from any party in the transaction, we fire the agent.”

Douglas R. Miller, executive director of Consumer Advocates in American Real Estate and former head of a title insurance agency in Minnesota, calls payments to realty brokers and agents by home warranty companies “bribes,” whether clients know about them or not.

The 1.1-million-member National Assn. of Realtors has been outspoken on the issue, arguing that federal anti-kickback regulations should not cover warranties because they are not “settlement services” and have no effect on the closing of a real estate transaction. In a letter to the Department of Housing and Urban Development — the chief regulator of the real estate settlement statute — the association argued that brokers and agents provide a valuable service in alerting sellers and buyers to the existence of warranties.

“Consumers are often not familiar with the numerous home warranty products,” wrote Vicki Cox Golder, 2010 president of the association. “Real estate brokers and agents do not merely flash a brochure concerning these products to individual buyers and sellers.” Instead, they “devote valuable time educating consumers about the features, limitations, coverage and pricing of home warranties.”

HUD has disagreed, however. In an interpretive rule issued last summer, HUD said that “a real estate broker or agent actively promoting [a home warranty company] and its products to sellers or prospective home buyers” for compensation is considered to be making a “referral” that violates federal law. If a case-by-case factual analysis demonstrates that agents provided substantive services beyond their normal duties, the department said, then the fees may not be in violation — a ruling that Realtors have said is unacceptably vague.

Attorneys for the plaintiffs in the American Home Shield settlement cited the HUD guidance extensively. Other class-action suits challenging home warranty payments to agents are at various stages in federal courts around the country, according to attorneys familiar with the issue.

Bottom line for you as a seller or buyer: Be aware of the practice and the legal controversy surrounding it. Ask for full disclosure on fees. And before you sign up, go online and check out customer reviews for the company being promoted. More than a few consumers aren’t happy about the service quality they get for their $400 to $500.