Have you ever crashed on the hotel-room couch of a title agent or lender friend — and did you know that it could potentially get you into trouble?
Minnesota real estate agent Brandon Doyle was recently fined $5,000 by the Department of Commerce (DOC) for allegedly receiving “things of value” in exchange for referrals to a title company. Liberty Title, the title company in question, will pay a $45,000 fine, according to a consent order.
The alleged ‘kickbacks’
Nine out of 11 of the alleged kickbacks were for meals with Liberty Title, Doyle confirmed.
Eight meals were eaten in Minnesota and one in New Orleans, Louisiana. “The meals were all networking functions which included other agents, loan officers and title reps,” Doyle told Inman in an email. “Some were mastermind lunches, others were big events with tons of other people.”
The other two alleged kickbacks involved hotel room accommodations and beverage upgrades for a client appreciation event that Doyle held at a Minnesota Wild hockey game.
|7/16/14-7/18/14||hotel room||San Francisco, Calif.|
|7/25/14||meal||Wild Bills, Minn.|
|7/31/14||meal||Granite City, Minn.|
|9/5/14||meal||3 Squares, Minn.|
|11/11/14||meal||Royal House, La.|
|5/26/14||beverage upgrades ($980)||Minnesota Wild hockey game|
|6/15/15||meal||Cheesecake Factory, Minn.|
“Nick Dreher and I traveled together to Inman Connect San Francisco when I was up for Innovator of the Year,” Doyle said. “I couldn’t find a place to stay and didn’t know the area so he let me sleep on his couch.
“He and I have shared costs and bought each other meals, drinks etc. as friends do. There were many times where I’ve paid, but that evidence wasn’t considered during the investigation,” Doyle added.
Dreher co-authored a book with Doyle that was published in 2016, Mindset, Methods & Metrics: Winning as a Modern Real Estate Agent.
As far as the hockey game, Doyle says that the attending clients were mutual past clients of his and Liberty Title’s. “The total cost was over $5,000 and they contributed $980 for a beverage upgrade option,” he said. “They had a representative there with their marketing materials. During my investigation the DOC agreed that this was not a thing of value, but for some reason it showed up in Liberty Title’s consent order. My understanding is that this was and still is an acceptable practice.”
Doyle says that although he doesn’t agree with the allegations, “I spent over a year burning up resources fighting. Unfortunately, I had to make a business decision to sign the consent order and move on. Doing so is not an admission of guilt.”
What’s up with Minnesota?
In September 2015, the Minnesota DOC fined another title company — TitleSmart — $50,000 “for allegedly providing boat cruises, food, alcohol and other gifts to real estate agents and mortgage loan officers in exchange for the referral of business,” wrote Inman reporter Amy Tankersley at the time. Minnesota’s DOC seems to be the only one in the country enforcing the Real Estate Settlement Procedures Act (RESPA) in this way.
“In Minnesota, we don’t have a commission that’s in charge of real estate; it’s a regulatory agency,” explained Minnesota Association of Realtors CEO Chris Galler.
And since the recent gubernatorial election in Minnesota, Galler says, the regulatory agency has been interpreting RESPA in line with the CFPB’s strict interpretation of the act — which has recently come under fire.
In a case involving mortgage lender PHH, “it’s clear that the CFPB has incorrectly interpreted RESPA,” said Ralph Holmen, associate general counsel for the National Association of Realtors.
An amicus curiae (“friend of the court”) brief filed by NAR and several other industry leaders in that case states that the CFPB overstepped its bounds by:
- “Abandoning” the relevant RESPA regulation (which, the brief says, “‘permits’ the very practices that subjected PHH to a $109 million penalty”)
- Failing to notify the industry that it had done so through a notice of proposed rulemaking
“The Bureau cannot abandon such regulations without issuing a notice of proposed rulemaking and soliciting comments on its proposed amendments,” stated the brief.
One of the issues that concerns NAR about the PHH case, Holmen noted, “is the core issue of whether there is a disguised or somehow embedded referral fee if you engage in a marketing activity with a partner, or a promotional activity with a partner.
“If I’m a broker and I market the services of the lender, and that lender pays fair market value for that marketing, and I indeed do what I’m supposed to do, is it a violation of RESPA or not?” he asks.
In the PHH case, he notes, the appellate court said this was not a violation. But the CFPB argued that “there’s some value to that arrangement over and above what compensation is actually paid for it. This assumes that there’s referral activity going on between the two partners,” Holmen said.
“That’s an incorrect interpretation of RESPA, and it’s inconsistent with how RESPA has been interpreted at this point for years. Even if you’re going to change the interpretation, you have to go through the regulatory process of having comment and change the rules, not just cavalierly change them in enforcement proceedings,” he added.
While the PHH case makes its way through ever-higher courts, however, regulators in Minnesota are continuing to use the CFPB’s strict interpretation of RESPA.
“We’ve given information directly to our people that the Department of Commerce has taken a very different light since the governor got elected, and the people he put in place view their job as 100-percent consumer protection,” noted Galler. “They want everything to be handled with no potential of collusion, and even the hint of it is setting them off.
“The regulators here have decided to use the CFPB model, which is ‘we will tell you what you can and can’t do by enforcement action,’ which puts agents and brokers in a very difficult position — but that’s the way they view their job at this point,” said Galler.
Referrals to title companies
The order notes the proportion of Doyle’s business that closed at Liberty Title:
- 2013: 0 percent of transactions closed at Liberty Title
- 2014: 30.77 percent of transactions closed at Liberty Title
- 2015: 86.96 percent of transactions closed at Liberty Title
“We’ve always given our clients options when they’ve picked their closing services and have encouraged them to shop around,” Doyle said.
He noted that in 2013 and part of 2014, “We were previously with Edina Realty, and a majority of our clients were using Edina Realty Title, which is an affiliated business. The Department of Commerce had no issue with the fact that in 2013-2014, about 75 percent to 80 percent of our clients used Edina Realty Title.”
Although he doesn’t agree with the allegations, Doyle said he signed the order in an attempt to “put this all behind me, but they’ve continued to paint a picture of me that is not true. Now I’m spending time defending my reputation to local and national news outlets when I should be focused on helping my clients.”
“My clients and colleagues in the business have rallied behind me, which has been uplifting. I hope that there will change in the industry so that this does not happen to other people,” he added.