Refund checks are in the mail to more than 50,000 Californians who allegedly overpaid for natural hazard disclosure reports because the real estate brokerages that listed their homes were taking kickbacks from the company producing the reports.

A total of $5.5 million in refunds are being paid out to consumers under the terms of a class-action lawsuit settlement. But the lawyers who filed the case ended up taking home nearly twice that much: $9.47 million in attorneys’ fees plus $363,000 in expenses, or $9.83 million in total.

Fewer than one in six of the more than 300,000 homeowners originally believed to have overpaid for the reports, produced by Property I.D. Corp., will receive refund checks averaging $110.

A direct-mail and newspaper-advertising campaign to reach potential victims generated only 57,751 claims, and 7,374 of those were rejected as invalid, according to the company handling distribution of the settlement.

The lawsuit alleged that from 1996 to 2006, Property I.D. formed sham "affiliated businesses" with real estate brokerages in order to share profits from the sale of natural hazard disclosure reports priced at $99 to $114.

After deducting $50 per report to cover expenses, Property I.D. allegedly split the remaining $50 profit with referring brokers, including Coldwell Banker, Prudential California Realty, RE/MAX, Century 21 and ERA Real Estate.

Property I.D. and the real estate brokerages it partnered with shut the affiliated businesses down and denied wrongdoing. The companies said they agreed to settle the case to avoid further disruption of their business and bring to an end a protracted and costly court battle that began in July 2005.

The settlement agreement, approved Jan. 28 by U.S. District Court Judge George King, committed the companies and their insurers to pay out up to $39.8 million in refunds, attorneys’ fees and settlement costs.

Had the suit gone to trial and the companies been found to have violated the anti-kickback provisions of the Real Estate Settlement Procedures Act, they could have faced triple damages and a judgement of nearly $120 million, the lead attorney for the alleged victims said.

But the attorney, Barry Himmelstein of San Francisco-based law firm Lieff Cabraser Heimann & Bernstein, said proving a RESPA violation would have been risky, and that the ability of the companies to pay a larger settlement was uncertain (see story).

The Department of Housing and Urban Development filed its own lawsuits against Property I.D. and its partners, alleging the natural hazard disclosure reports were subject to RESPA and that the affiliated businesses, or AfBAs, were shams.

HUD reached settlements last year with Property I.D., Realogy Corp. and Pickford Real Estate Inc. that were conditioned on final approval of the class-action settlement (Realogy is the parent company of Coldwell Banker, Century 21 and ERA Real Estate, and Pickford Real Estate is the owner of Prudential California Realty offices in Southern California that were accused of participating in the sham affiliated business arrangements). …CONTINUED

In its agreement with HUD, Property I.D. said in the future it would "consider and treat (natural hazard disclosure) reports as settlement services for purposes of RESPA."

In February, one alleged victim of the kickbacks, Anvar Alfi, appealed the settlement of the class-action lawsuit to the Ninth Circuit Court of Appeals. But Alfi agreed to drop his appeal after reaching a $150,000 settlement that included a $37,500 payment to his attorney, Howard Strong, from previously awarded attorneys’ fees.

The May 29 settlement agreement with Alfi stipulated identical payments to three consumer groups: the Consumer Federation of America Education Foundation, CALPIRG Education Fund, and Consumer Watchdog. Alfi’s request to dismiss his appeal was granted by the Ninth Circuit Court on June 23.

In the end, with expenses associated with administering the settlement exceeding $1.3 million, the lawsuit ended up costing the defendants $16.9 million. About half that amount was paid by Property I.D.’s insurer, and the rest split between the real estate brokerages.

With Alfi agreeing to withdraw his appeal and Realogy making final payments of $3.77 million, Himmelstein last month requested an order approving distribution of funds. Judge King issued the order on June 19. According to a Web site set up to help administer the settlement, the process of mailing out checks began July 9.

Property I.D.’s records showed that as many as 330,808 homeowners purchased natural hazard disclosure reports that involved kickback payments to real estate brokers, the lawsuit charged.

But tracking down the new addresses of those homeowners proved challenging. Property I.D.’s records showed the addresses of properties it prepared reports for, but not the names of the home sellers purchasing the reports.

Last fall, settlement administrator Garden City Group Inc. used an analysis of property records to send claim forms to 249,450 addresses believed to be the current residences of potential victims, and published a notice of the proposed settlement in about 130 newspapers.

The deadline for filing for a claim under the terms of the settlement was March 27.

Homeowners who believed they were wronged but wanted to pursue a claim on their own were given until Dec. 15, 2008, to request that they be excluded from the settlement, and 19 such requests were received.


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