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No Shame in Shopping

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 home-buying process.

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." See 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". See 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. See 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 your right.

Categories: Foreclosure Defense
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