The Consumer Financial Protection Bureau (CFPB) ordered the largest real estate company in Alabama to pay $500,000 for allegedly inadequate disclosures to consumers during the home-buying process.
According to the agency, RealtySouth failed to inform purchasers of the right to choose their service providers, resulting in illegal benefits for TitleSouth, a service provider affiliated with RealtySouth. Instead, for a 14-month period, RealtySouth’s preprinted form purchase contract explicitly directed consumers to TitleSouth for title and closing services. A modification to the form in 2012 presented borrowers with a choice between TitleSouth and an unnamed “other” company.
The CFPB noted that while the Real Estate Settlement and Procedures Act (RESPA) allows real estate companies to refer customers to affiliated businesses (called “affiliated business arrangements” or “AfBAs”), they must provide an AfBA disclosure form that explains home buyers’ rights, including the power to shop around and choose a service provider.
RealtySouth’s AfBA disclosure was inadequate, the agency alleged, failing to properly highlight consumers’ rights by not tracking the format recommended by the CFPB and burying the required language in a section that also contained marketing claims about the benefit and value of its affiliated entities (“We at RealtySouth believe our affiliates provide superior service, value, and convenience,” for example).
In addition to the $500,000 civil penalty, RealtySouth has already updated its AfBA forms and procedures to ensure compliance with RESPA, including additional training to prevent agents from requiring the use of affiliates going forward and adoption of the CFPB-recommended format for AfBA forms.
To read the consent order, click here.
Why it matters: RESPA generally prohibits payment of a fee or other thing of value in return for the referral of mortgage loan business, but AfBAs are a significant exception to the general rule. RESPA was previously enforced by HUD, but RESPA has been transferred to the CFPB as part of the Dodd-Frank Act. This enforcement action shows that the CFPB is beginning to focus on the antikickback provisions of RESPA. And in addition to attacking “sham” AfBAs, CFPB is also reviewing AfBAs to make sure that all technical requirements, including proper disclosures, are satisfied. Mortgage lenders, real estate brokerage firms and others involved in AfBAs should revisit their arrangements to ensure that they comply with all RESPA requirements.