Regulations

Preprinted real estate contracts could get you fined

Consumer Financial Protection Bureau cracking down on steering homebuyers toward specific lenders or title companies

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It’s a seemingly innocuous practice, some say a convenience, but many real estate agents are steering their brokerages toward enormous fines and unwanted attention from state and federal regulators — and they don’t even realize it.

Preprinting the names of third-party service providers onto your real estate contracts when your brokerage has a professional affiliation with that provider is a surefire way to attract the attention of the Consumer Financial Protection Bureau (CFPB). And when it shines a spotlight, the revelations can be costly.

Brokerages that maintain marketing service agreements (MSAs) and affiliated business arrangements (AfBAs) with title companies are particularly at risk. These revenue-sharing relationships are quite common, but they attract regulatory scrutiny and require strict compliance to ensure the homebuyer receives the proper disclosures.

For example, if your brokerage has an MSA or AfBA and you prefill the name of the title company in the real estate contract, that is viewed as a violation against a homebuyer’s ability to shop for and choose her own service providers during the homebuying process, according to the CFPB.

The CFPB newsroom has been pumping out a steady stream of releases with the words “takes action” in the headlines. That’s because they are dishing out fines to real estate firms — as well as mortgage lenders and title companies — who violate the Real Estate Settlement Procedure Act.

“The Consumer Bureau will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark,” said CFPB Director Richard Cordray after his organization slapped one real estate firm with a $500,000 fine.

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If you’re using real estate contracts preprinted with service providers, the easiest way to avoid trouble is to stop using those contracts. Point your homebuyers toward the CFPB’s “Know Before You Owe” campaign, and encourage your homebuyers to choose their own service providers.

At minimum be aware of any MSAs or AfBAs your brokerage may have, because the CFPB isn’t the only government entity that’s digging in. And agents themselves are on the hook, too.

Many state real estate commissions are adding language to their laws to discourage licensees from steering their homebuyers toward specific lenders or title companies. In Maryland, for example, they’re revoking real estate licenses, handing out jail time and levying huge fines to those who violate their provisions.

“Violation of this provision of the law is a misdemeanor crime, and could lead to a fine not exceeding $5,000, imprisonment not exceeding one year, or both,” states Section 17-607 of the Maryland Real Estate Brokers Act. “These actions could also be the basis of a disciplinary action before the commission, which could result in the suspension or revocation of the license.”

As a real estate agent, if your name and brokerage appears at the bottom of a contract preprinted with the name of a service provider involved in an MSA or AfBA with your brokerage, then you can be certain you are signing yourself up for trouble.

Todd Ewing is the founder of Federal Title and Escrow Company, the largest independently owned title company in Washington, D.C., and the creator of the CloseIt! app.