A class action lawsuit was just filed against Old Republic International, Old Republic Home Protection (ORHP) and Old Republic National Title Insurance Company in federal court in California. The lawsuit alleges that Old Republic and some of its subsidiaries “violated federal and state law by paying commissions and kickbacks to real estate agents in exchange for the agents’ referral” of Old Republic settlement service business. It is also alleged that Old Republic “actively concealed the kickbacks from consumers and federal and state regulators.”

The lawsuit is called Campion v. Old Republic International Corporation and was filed on January 27, 2012 in the United States District Court, Northern District of California, Oakland Division. Click here for a copy of the complaint.

According to the complaint, ORHP made more than 190,000 illegal payments between 2007 and 2009. It is alleged that these payments were made to more than 28,000 offices, agents, brokers, escrow offices, and lawyers. The complaint also alleges that the “payments were not in exchange for settlement services actually provided and were not nominal payments. In the case of kickbacks in exchange for the referral of home protection contracts, for example, the payments averaged approximately one-fifth the premium of such policies.”

The complaint also specifically targets “Marketing Agreements” or “Administrative Services Agreements” between ORHP and real estate brokers or agents. Under these Agreements, ORHP allegedly made payments to brokers or agents when the consumer purchased a home warranty contract. The lawsuit notes that, according to HUD, characterizing “such arrangements as ‘marketing’ or ‘administrative’ agreements does not render the underlying conduct legal” and that the agreements are “only a means to facilitate payments for referrals by persons in a position to refer settlement service business, in violation of RESPA.”

The lawsuit alleges that ORHP and other Old Republic subsidiaries violated RESPA, the California Insurance Code, and California’s unfair competition law by their kickback payments to real estate brokers or agents. The Complaint seeks restitution “of all sums unlawfully collected” from consumers, as well as treble damages and attorneys’ fees.

Did you receive compensation from ORHP or another Old Republic subsidiary? Are you a real estate broker or agent who was paid a fee by ORHP when a consumer purchased a home warranty contract? Are you a party to a Marketing Agreement or Administrative Services Agreement with ORHP?

If so, consider your potential liability. Will the brokers or agents who received compensation be the next targets of the class action lawyers? Will the CFPB and RESPA investigators step in?

Please share your stories of working with ORHP with RE-Insider. Have you experienced these “kickbacks?” We will respect your anonymity and post no names.

Stay tuned as we continue to report on this developing story.

This week we got a very powerful email from one of our readers. It was a list of questionable practices some agents, specializing in REO, are using at the expense of others. The following email is rich with information. Please take a read and let us know what you’ve seen. At RE-Insider, we believe that we can all benefit by sharing our experiences.

I’ve been tracking activities in my area for at least five years. I am unusual in that I work in, and am very familiar with, an area that covers more than three counties. My background as an engineer, and my experience in trends and forensics, makes it feel (to me) as though I can almost see these activities growing in practice before my eyes.

– MANY local REO agents have been, and still are, manipulating their sales by hiring buyers’ agents at a very low split compensation and then suppressing other agent’s offers in favor of their sub-agent’s offers. The framework of the team is only known to the brokerage, and not to the banks, since all the employees are 10-99 employees. This is out-and-out fraud, and I can name names, even.

– Other REO agents are continuing practices that are blatant RESPA violations. In the past two months alone, I have had two separate buyers told to pay title/escrow fees in SPITE of the fact that they were forced to use the Bank’s [Seller’s] own escrow company.

The agents use the trick this way: The buyer receives the bank addendum stating that they should “check one” of two boxes: either they will use THEIR chosen escrow company and pay the title insurance and escrow fees, OR, they may choose to use the bank’s RECOMMENDED escrow company and the bank will pay an escrow fee.

Once the buyer agent sends back the form and the buyer has elected their own title company, the selling agent then says, “I already put this PENDING, and if I have to re-write this form NOW, I will have to let it go back on the market, and you will have to hope we don’t get any more offers. OR, you can just check the box that says that you are choosing OUR escrow company.” <--- Violation Number 1 Then, AFTER ALL THIS, and the Buyer has been strong-armed into going with the escrow company that the Bank/Seller wants to use, the listing agent then provides a "disclosure" stating that the escrow company is in part or wholly owned by the bank. <--- Violation Number 2 Of course, the capper is that the Buyer ends up paying all sorts of junk fees to the pseudo-escrow company before all is said and done, so that the reality of the bank "paying" those fees is mitigated, and the buyer has basically paid them anyway. - Another insidious thing that agents are doing is that there are some agents who OBVIOUSLY never intend to work a short sale listing they get. It's quite transparent that they only took the listing in order to get buyer leads as long as they can. These days, there is NO REASON not to close nearly every short sale out there. I find it a sad state of affairs that everybody--the public and real estate agents as well--have completely gone numb to doing the right thing, and to being honest and accountable.

Lately we’ve seen more than a few instances of lenders, brokerages and banks finding creative ways to rip off agents. So we thought we’d compile a brief and incomplete list to help agents sort out some of the creative the scams that seem to be so prevalent these days. Each of the following questionable practices may be a violation of RESPA, so RE-Insider strongly suggests avoiding all of them if you want to protect your real estate license.

1. Rent-a-Desk – As we’ve detailed previously, agents are sometimes forced to use settlement service providers simply because they share office space.
2. Pre-Qualifying Buyers with In-House Lenders – Agents are sometimes forced to present an offer to a buyer that is “pre-qualified” by an in-house lender. These lenders may not be reputable or reliable but are used because they are paying rent or partnered with the broker.
3. The Non-Recoverable Costs in Bait-and-Switch – Brokerages tell buyers that they have qualified for one loan only to get 17 days into a transaction to find out that their lender didn’t vet their qualifications properly. Sometimes this is simply a lender fishing for an exception to their guidelines, but it puts the buyers’ deposit at risk and can add to the non-recoverable cost of appraisals, inspections, credit reports and more.
4. Builders Preferred Lenders – Agents sometimes must deal with home builders that have “preferred lenders” that just happened to be owned by the builder.
5. Bank Loan Recapture Programs – Some banks have recapture programs with their REO listings and require buyers to pre-qualify with their origination branches.
6. In-House Escrow – Some larger, national chain brokerages have in-house escrow (or an affiliate escrow company) that must be used by the agent.
7. Double Commissions – Some agents have extra incentive to get the deal done by any means necessary because they don’t want to lose two commissions – both the buyer and seller.

This is only seven of seemingly endless practices that agents should be on the lookout for. Please help us continue to grow our list and send us any other clever scams that you have come across. Help us continue to educate agents and clean up the real estate industry!

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?
Yes

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.

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.