For about four years, the Consumer Financial Protection Bureau (CFPB) has put marketing service agreements (MSAs) between real estate brokers, mortgage lenders and settlement service providers under a microscope, causing confusion and strife in the compliance world by ratcheting up its Real Estate Settlement Procedures Act (RESPA) litmus test for affiliated partnerships.

  • A marketing service arrangement between Quicken and Re/Max has ended in two breach-of-contract lawsuits, one filed by each company.
  • Quicken claims that Re/Max misled it about the value of the arrangement. Re/Max claims that Quicken failed to honor the agreement.

For about four years, the Consumer Financial Protection Bureau (CFPB) has put marketing service agreements (MSAs) between real estate brokers, mortgage lenders and settlement service providers under a microscope.

The magnified attention caused confusion and strife in the compliance world by ratcheting up the CFPB’s Real Estate Settlement Procedures Act (RESPA) litmus test for affiliated partnerships.

In response, some of the nation’s top companies terminated their MSAs — loosely defined as contracts by which one company will market another company’s products — or took a serious red pen to their contracts.

And some companies forged ahead with their MSAs with a laser focus on the CFPB’s (sometimes baffling) RESPA interpretations. But for some of those companies, the gamble didn’t quite pay off.

That seems to be the case for Denver-based real estate brokerage franchisor Re/Max LLC and Detroit-based nonbank lender Quicken Loans Inc., which entered into an MSA in 2015 that never quite got off on the right foot.

The agreement has now dissolved into two competing federal lawsuits that the companies have filed against each other, each asserting that the other breached the MSA contract in some way.

The CFPB’s stance on MSAs and RESPA compliance played a significant role in the unraveling of the companies’ alliance, but according to court documents, the partners may never have been on the same page with regard to the contract they executed.

Here’s what went wrong with what the companies hoped would be “a first-of-its-kind relationship between a national non-bank lender and a national real estate franchisor,” according to the two lawsuits.

Doomed from the start?

The lawsuits concern a “strategic marketing alliance agreement” that Re/Max and Quicken entered into in the summer of 2015, despite having seemingly disparate views on MSAs.

Re/Max and longtime partner Bank of America (BofA) had an MSA from 2014 to 2016 that “connected Re/Max brokers and agents with a variety of bank services” and named BofA its “preferred mortgage lender,” while Quicken chose not to engage in “traditional MSAs,” as noted by a FAQ that Re/Max put out about their partnership.

Court filings from both companies also hint that they may never have been on the same page about their arrangement — or about their regulators’ stance on MSAs, in general.

Re/Max’s tale

According to Re/Max’s lawsuit, in the spring of 2014, Quicken approached the company about entering into “a business relationship by which Re/Max would provide Quicken Loans with certain services and opportunities to advertise and market Quicken Loans’ services generally within the United States.”

Re/Max’s complaint characterizes the agreement as “a co-branding and marketing arrangement, in exchange for which Quicken Loans would pay Re/Max certain monthly and annual flat fees, in no way tied to any response from the customers of Re/Max franchisees or business derived by Quicken Loans from the agreement.”

Highlighting its attentiveness to RESPA’s anti-referral provisions, the company went on to specify that “no compensation or other thing of value was to be paid directly or indirectly to any Re/Max real estate agent or real estate broker.”

Quicken’s side of the story

Quicken’s lawsuit — expressed in the flamboyant language that has become a trademark of the lender’s litigation — paints a different picture about the origins of the partnership: “Given Quicken Loans’ stellar reputation and client-centered innovation, Re/Max approached Quicken Loans in the summer of 2015 regarding a potential marketing alliance.”

(The 2015 timeframe that Quicken references is a nearly one-year difference from when Re/Max’s lawsuit states the talks began.)

During this alleged discussion, “Re/Max claimed a competing originator had developed $10 billion of business as a direct result of its marketing partnership with Re/Max,” Quicken’s complaint states.

Quicken also alleges that Re/Max only gave the lender “a narrow, two-week window to discuss a potential alliance.” When Quicken was “led to believe that there was a sufficient value in Re/Max’s proposed/abstract marketing alliance to justify the proposed price,” Quicken claims, “the dialogue continued.”

Anatomy of the agreement

Dave Liniger

Dave Liniger

Re/Max Chairman and CEO David Liniger and Quicken President and Chief Marketing Officer Jay Farner signed the four-year agreement on July 9, 2015, and it had an effective date of Oct. 15, 2015.

The contract describing the arrangement called it a “strategic marketing alliance agreement,” not an MSA, and stressed that the companies’ arrangement was that of “an independent contractor relationship.”

Jay Farner

Jay Farner

“Nothing in this agreement shall be deemed to constitute a partnership, joint venture, employment or agency relationship,” the contract stated.

The agreement authorized Quicken to promote and sell its goods and services through the Re/Max Approved Supplier Program, designated Quicken as Re/Max’s “preferred residential mortgage provider,” and permitted Quicken to include Re/Max’s service mark on the post-domain path of its internet URL address (for example: www.quickenloans.com/remax), among other provisions.

The agreement called for Quicken to pay Re/Max a monthly $325,000 marketing fee; an annual $250,000 fee for participation as Re/Max’s exclusive mortgage sponsor in the company’s annual convention; and an annual, $150,000 payment for participation as Re/Max’s exclusive mortgage sponsor in its annual Broker Owner Conference.

The companies further agreed that a committee comprising an equal number of representatives from each party would meet at least twice a year to review the marketing arrangements and determine whether any changes should be made.

They also agreed to “explore mutually beneficial opportunities in other areas, including settlement services, relocation services and international mortgage origination.”

In what may have been a nod to the uncertain regulatory environment for MSAs at the time, the agreement also contained a clause that stated that if a new law, rule or regulation was passed — or if a new interpretation of an existing law, rule or regulation was handed down — then either company would have the right to rejuvenate “good-faith discussions to restructure, renegotiate or otherwise amend the terms provided for in this agreement as appropriate to cure such non-compliance with applicable law.”

Soon after establishing the alliance, Re/Max had high praise for Quicken in its FAQ about their partnership, calling it “a first-of-its-kind relationship between a national non-bank lender and a national real estate franchisor.”

“Re/Max is working with a lender that tops the industry in client service year after year and, with its innovative online mortgage platform, has quickly risen to become the second-largest retail mortgage lender in the nation,” the company said in the FAQ.

“The company is the most dynamic player in the mortgage field; it’s the best at what it does.”

A matter of interpretation

But a week before the companies’ agreement took effect on Oct. 15, 2015, an interpretation by a regulatory authority did arise, significantly impacting the companies’ alliance before it even got underway.

On Oct. 8 — amidst cries for formal guidance on its position on the legality of MSAs under RESPA — the CFPB issued Compliance Bulletin 2015-05, which stated that “while marketing services agreements are usually framed as payments for advertising or promotional services, in some cases the payments are actually disguised compensation for referrals.

“Any agreement that entails exchanging a thing of value for referrals of settlement service business likely violates federal law, regardless of whether a marketing services agreement is part of the transaction,” the bureau stated in the bulletin.

According to Quicken’s court filings, the CFPB’s bulletin and the rocky regulatory landscape in general “impacted the legality and viability” of its pact with Re/Max.

“Given the dynamic legal landscape, Quicken Loans continued to analyze how to perform under the agreement, if at all, while complying with all governing legal standards,” the company alleges.

Quicken says it secured a valuation from an independent third party in September 2015, “which uncovered and exposed the material overvaluation of the agreement and determined that it was worth merely half the value that Re/Max had claimed.”

Quicken claims that when it disclosed this to Re/Max and questioned whether the contract was permissible under RESPA, Re/Max submitted a spreadsheet explaining the value activity levels and scope of the marketing services to be provided by Re/Max “to justify its fee and induce Quicken Loans to continue with the marketing alliance.”

“Re/Max knew it had no ability to provide its marketing services at these levels, but made the representations to justify its fee and induce Quicken Loans to continue with the marketing alliance,” Quicken alleges.

“These disingenuous attempts by Re/Max to justify its fee under the agreement were the first clear signs that the two parties presented wholly contrasting corporate cultures: Re/Max wanted to prove it was right; Quicken Loans sought to do what was right.”

To “cure” aspects of their agreement that the CFPB may have deemed questionable, on Nov. 10, 2015, Re/Max and Quicken executed an amendment to their agreement in which Re/Max agreed “to use commercially reasonable efforts, in compliance with all applicable laws and regulations,” and changed the reference to Quicken from Re/Max’s “preferred” mortgage provider to Re/Max’s “official” mortgage provider.

That key contract change mirrored one made by the companies’ competitors, real estate brokerage franchisor Realogy and mortgage lender PHH Home Loans, who made headlines last fall for removing a similar provision in their joint-venture agreement, which referred to Realogy as PHH’s “exclusive recommended real estate broker.”

The Realogy/PHH Home Loans amendment, discovered by Inman in Securities and Exchange Commission (SEC) filings, later became the subject of a class-action RESPA lawsuit filed in California federal court that is still ongoing.

The amendment also called for Re/Max to provide additional general marketing services for Quicken, none of which were directed at consumers, in return for fees to be paid by Quicken, including the display of Quicken’s logos on various Re/Max websites; marketing Quicken at a four-day training class for new and existing franchise owners and/or managers; and advertising Quicken in two publications, among other services.

Cure causes more ills

But the companies’ alliance only got rockier after they amended their agreement, court documents show.

According to Re/Max, Quicken made “numerous misrepresentations” during the course of their relationship and “failed to provide, as promised, key technologies and resources to Re/Max to assist Re/Max in fulfilling its obligations.”

Quicken alleges that Re/Max didn’t hold up its end of the deal, either, claiming the company failed to implement, by required deadlines, the ability for consumers to request information on preapproval from Quicken or sponsored listing videos on remax.com, as well as digital Quicken ad placements on Re/Max’s mobile app and sponsored listing videos.

“Given these failures, the amendment failed to cure the central offending aspect of Re/Max’s marketing scheme: an overvalued price leading to Re/Max securing marketing fees that are not reasonably related to the value of the goods or services received in return — a violation of RESPA,” Quicken alleges in court documents, adding that it attempted another modification of the companies’ contract, but Re/Max refused.

But the companies forged ahead anyway. Re/Max invoiced Quicken for services performed from October 2015 to April 2016, and Quicken paid those invoices.

Then, suddenly, in May of this year, Quicken stopped paying, “despite the substantial benefit it received during these months through the services and opportunities provided by Re/Max,” according to Re/Max’s complaint.

On Sept. 2, Re/Max notified Quicken that it was in material breach of their agreement for failing to pay the monthly marketing fees — and the companies’ soured relationship finally hit a breaking point.

A race to the courthouse

As Re/Max prepared to go to court to recover the unpaid marketing fees, Quicken beat it to the courthouse.

On Sept. 7, the lender filed suit in the backyard of its Detroit headquarters, the U.S. District Court for the Eastern District of Michigan, alleging fraudulent inducement, unjust enrichment and breach of contract.

The lawsuit seeks disgorgement of any and all compensation it provided to Re/Max, estimated at $2.3 million plus interest, as well as punitive damages and attorneys’ fees.

“Re/Max’s corporate offices dramatically overpromised and significantly under delivered on its contractual obligations, breaching its contract with Quicken Loans,” Quicken told Inman. “We repeatedly attempted to restructure the agreement to more accurately reflect the level of commitment that Re/Max was able to deliver. But Re/Max insisted on receiving full payment despite their failure to perform their obligations in the contract.”

Quicken was particularly concerned that the MSA contract violated RESPA because its marketing fees were not commensurate with the services provided, Quicken said.

“Our decisions and actions are always guided by a philosophy of doing the right thing,” said Quicken. “We naturally expect our partners and the counterparties of contracts we enter into to have similar standards. Clearly, honoring contractual commitments and following regulatory guidelines, including RESPA, are fundamental to our philosophy.”

On Sept. 19, Re/Max filed its own lawsuit in its home state of Colorado, calling Quicken’s lawsuit a “preemptive” move designed to circumvent the exclusive Colorado forum selection clause in their agreement.

“The lawsuit filed by Quicken Loans on Sept. 7 was an attempt to anticipate the suit that Re/Max LLC filed Sept. 19 in U.S. District Court for the District of Colorado, where the agreement requires all disputes be heard,” said Pete Crowe, Re/Max’s senior vice president of communications and marketing, in a statement to Inman.

Re/Max’s lawsuit, filed in the U.S. District Court for the District of Colorado, asserts claims for:

  • Breach of contract
  • Breach of the implied covenant of good faith and fair dealing
  • Unjust enrichment

The lawsuit seeks a jury trial, compensatory damages including lost profits, pre- and post-judgment interest, court costs and attorneys’ fees.

“When all of the facts are revealed, it will be apparent that the allegations made by Quicken Loans are false,” Crowe told Inman. “Quicken Loans failed to honor the provisions of the agreement, and Re/Max LLC is prepared to enforce the agreement and will contest and defend itself against the baseless countersuit from Quicken Loans.”

Re/Max will make no further comment while the litigation is pending, Crowe said.

What happens next?

Not unlike the rocky partnership, both cases are off to a shaky start.

On Sept. 15, Re/Max filed a motion to transfer Quicken’s lawsuit to Colorado. The company also asked the court to stay its response to the complaint pending resolution of its motion to change venue.

But on Sept. 21, the Michigan court denied Re/Max’s motion to stay its response, finding that “No matter where this case is adjudicated, the defendant will be required to respond to the complaint. Delaying the response to the complaint because the case may be transferred does not outweigh the plaintiff’s right to have this case heard without undue delay.”

Meanwhile, the Colorado case was assigned to Judge Christine M. Arguello, who on Sept. 21 recused herself “based on the professional relationship I have with Quicken Loans.”

The case will be reassigned to a new judge by random draw.

Although Arguello didn’t elaborate on the nature of that professional relationship, she also has something in common with Re/Max: In 2003, she worked for the Denver-based law firm of Davis, Graham & Stubbs LLP — the same firm representing Re/Max in this case.

Email Amy Swinderman

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