Alabama’s biggest real estate brokerage, RealtySouth, has agreed to pay a $500,000 civil penalty to settle allegations that it “strongly encouraged” and in some cases required agents to use its affiliated title insurance and closing services provider, without adequately disclosing to consumers that they had a right to shop around for those and other settlement services.
In agreeing to pay the fine, RealtySouth neither admitted nor denied allegations detailed in a consent order issued by the Consumer Financial Protection Bureau.
Disclosures image via Shutterstock.
The consent order alleges that From March 2011 until May 2012, RealtySouth used a preprinted purchase contract that “explicitly directed” that title and closing services would be provided by its affiliated business, TitleSouth. In 2012, RealtySouth changed the language on the form to allow consumers to select TitleSouth or “other” as the provider, the consent order said.
The provision of title insurance and other settlement services provided in conjunction with a “federally related” mortgage is regulated by the Real Estate Settlement Procedures Act, or RESPA.
RESPA allows real estate brokerages to operated affiliated businesses providing mortgages, title insurance, closing services and other settlement services to their clients.
But real estate brokerages offering services to their clients through affiliated businesses must disclose that they have an ownership stake in the businesses, provide written estimates of what their services will cost, and make it clear that their clients are free to shop around to make sure they are receiving the best services and the best rate for those services.
The disclosures RealtySouth agents provided to their clients buried the notice that consumers were free to shop for services “at the end of a list of descriptions of seven affiliated businesses,” in what “appeared to be a second description of RealtySouth,” the consent order said. The disclosures also touted RealtySouth’s affiliated businesses, stating, “We … believe our affiliates provide superior service, value and convenience.”
According to the consent order, RealtySouth — a HomeServices of America company that employs more than 800 agents — immediately changed its disclosures when informed of the Bureau’s position that they did not comply with RESPA.
In addition to paying a civil fine, the company agreed that in the future, its disclosures will “contain no additional marketing statements or any other statement or content that materially interferes with, detracts from, contradicts or otherwise obscures the required disclosures.”
The consent order also requires RealtySouth to “ensure that all training materials, manuals, continuing education materials and any other documents that provide guidance to RealtySouth agents emphasize that agents cannot require the use of any affiliate in real estate transactions.”
“Disclosures give consumers the power to make informed financial decisions, and buying a house is among the biggest financial decisions most people ever make,” said CFPB Director Richard Cordray in a statement. He said the CFPB “will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark.”