One of the main goals of the Real Estate Settlement Procedures Act ("RESPA")
is to ensure that new home buyers are well-informed prior to making what
may very well be the largest financial commitment of their lives. RESPA
seeks transparency through adequate disclosure requirements during the
Last month, the Consumer Protection Financial Bureau ("CFPB")
came down hard on an Alabama real estate firm, RealtySouth, ordering the
firm to pay a $500,000 fine for inadequate disclosures. Specifically,
RealtySouth was found in violation of Section 8(a) of RESPA, which prohibits
giving or accepting a "fee, kickback, or thing of value pursuant
to an agreement or understanding" to refer business related to real
estate settlement services for a "federally related mortgage loan."
12 U.S.C. §2607(a). A "thing of value" is defined by Regulation X, RESPA's implementing
regulation, as "increased equity in a parent or subsidiary".
12 C.F.R. §1024.41(d). However, Affiliated Business Arrangements ("ABA") are permitted
so long as the agreement is disclosed to the consumer, the consumer is
not required to use the affiliated business, and the only "thing
of value" received is limited to a return on an ownership interest.
12 U.S.C. §2607(c)(4). Further, Section 1024.15(b) of Regulation X requires that persons making
referrals for business (AKA real estate firms) must provide an ABA Disclosure
Statement form which basically informs the consumer that they have a choice
– a choice to shop around for settlement services.
Well, RealtySouth did not exactly comply with these regulations. In fact,
the CFPB found that between March 2011 through May 2012, RealtySouth used
preprinted purchase contracts that "explicitly directed title and
closing services for which consumers would pay a charge to TitleSouth",
a direct affiliate of RealtySouth.
See, In the Matter of JRHBW Realty, Inc., D/B/A RealtySouth, et al., 2014-CFPB-0005 (May 28, 2014). RealtySouth did provide consumers with
an ABA Disclosure Statement, but the language did not comply with Regulation
X and the important language was hidden in its purchase contracts. Further,
RealtySouth's clients were unaware, based on the language in the contracts,
of their ability to choose their settlement services provider.
This is a precise example of what RESPA and its implementing regulations
intend to ensure – adequate disclosure. Here, RealtySouth was found
to have misled consumers and profit off the misguided language in their
purchase contracts. So, next time you're looking to purchase a home,
remember that there is no shame in shopping around. In fact, it's