Preliminary injunction in Massachusetts says “homeowner benefit agreements” are actually high-interest mortgage loans and can no longer be offered or enforced until case is resolved.

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A Massachusetts state court has granted a preliminary injunction against MV Realty, a real estate brokerage that offers impoverished homeowners money in exchange for a 40-year contract to list their home and a lien on their property to secure MV Realty’s real estate commission.

Separately, Washington State is the latest state to make headway on legislation restricting long-term listing agreements such as those used by the brokerage.

MV Realty has signed more than 35,000 “homeowner benefit agreements” since it began offering them in 2018. The agreements offer homeowners between $300 and $5,000 in cash. At the end of February, MV Realty, which operates in 33 states and has more than 500 licensed agents, announced that it was “taking the concerns of regulators and legislators seriously” and had therefore “paused entering into any new agreements in all states” and had hired an outside law firm “to evaluate and redraft our HBA contract to ensure greater transparency for consumers.”

The brokerage did not respond when asked whether it was continuing to enforce current agreements. Now, at least in Massachusetts, the brokerage won’t be able to. On March 3, the office of Massachusetts Attorney General Andrea Joy Campbell announced it had secured the preliminary injunction it requested when the state filed suit against MV Realty at the end of 2022.

 “MV Realty has used malicious marketing practices to prey on, lie to and financially exploit hundreds of homeowners across Massachusetts, stripping home equity from cash-strapped consumers,” Campbell said in a statement.

“This preliminary injunction will stop MV Realty from further harming our residents and serves as a model for attorneys general offices across the country to fight back against these kinds of predatory practices.”

In his Feb. 21 order, Judge Kenneth W. Salinger of Suffolk Superior Court opined that, while MV Realty structures its contracts as listing commission deals, “in economic reality MV is making high-interest loans secured by a mortgage interest in the property.”

“[T]he Court finds that the Commonwealth is likely to succeed in proving that MV has engaged in a pattern of unfair and deceptive conduct … by tricking homeowners into thinking they would never have to repay the amounts that MV advanced to them and that they would owe no interest to MV, hiding the fact that MV would record a mortgage on the borrower’s property with a statutory power of sale, falsely representing that MV would serve as their agent in selling their home when MV never had any intent of doing so, not giving the borrower homeowners copies of their contract with and mortgage to MV until after the three-day period to rescind the arrangement expires, recording mortgages on property that is owned by people who never received funds from MV, and unlawfully closing mortgage loans without being represented by an attorney,” Salinger added.

The preliminary injunction restricts MV Realty’s allegedly deceptive marketing practices, prevents the brokerage from collecting undisclosed fees, and prohibits MV Realty from obtaining or recording additional mortgages or enforcing existing mortgages in Massachusetts. MV Realty has signed homeowner benefit agreements with more than 400 Massachusetts homeowners, according to Salinger.

“While we are disappointed in the judge’s decision, MV Realty looks forward to the full exploration of this matter in court,” Michael J. Connolly, MV Realty’s outside counsel and partner at law firm Hinckley Allen, told Inman in an emailed statement.

“We remain confident the Homeowner Benefit Program fully complies with Massachusetts law and benefits consumers who receive a cash incentive to select MV Realty as their listing agent.”

The attorney general of Florida, where MV Realty is based, became the first state to file suit against the company at the end of November for alleged deceptive practices, followed by Pennsylvania and Massachusetts in December, and Ohio in February. The FCC also also called out the company in January for “an apparent homeowner-focused robocall scam campaign.”

In December, Sen. Sherrod Brown (D-OH),  Sen. Tina Smith (D-MN), and Sen. Ron Wyden (D-OR), sent a letter to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) requesting the agencies review real estate brokerage firms’ use of exclusive listing agreements and whether they violate federal consumer protection laws, calling out MV Realty specifically.

Under MV Realty’s homeowner benefit agreements, the brokerage pays homeowners between $300 and $5,000 (depending on the value of the home) in cash up front for signing a deal in which they agree that if they decide to sell their home anytime in the next 40 years, they will list the home with MV Realty as a transaction broker. A transaction broker is a neutral facilitator for a sale rather than a fiduciary looking out for the best interests of the buyer or seller. Such brokers do not owe clients a duty of loyalty or confidentiality.

In his order, Salinger said the state’s attorney general had shown that the injunction was in the public interest, in part because MV Realty was allegedly representing itself as a potential seller’s agent rather than as a non-agent facilitator — contrary to its own contract terms.

“MV’s marketing materials tell homeowners that if they chose to sell their property then MV will act as their ‘agent,’ MV will serve as a ‘full time real estate agent on our side,’ and that MV will be the homeowner’s ‘dedicated agent to check on market trends, new locations, or just to chat,'” Salinger noted. “The HBA specifies that in listing a homeowner’s property MV will serve only as a ‘non-agent facilitator.’ Under Massachusetts law, such a facilitator ‘does not act in an agency capacity.’ It is therefore deceptive for MV to tell prospects that if they sign the HBA then MV will act as their agent.”

Because MV Realty would not serve as a seller’s agent, Salinger also said the commission demanded under the brokerage’s homeowner benefit agreements was unjustified.

“The Court finds that the HBA terms constitute a high-interest loan to homeowners, and that homeowners do not get the ‘free money’ offered by MV, because MV is not promising and does not provide real estate sales assistance that would justify the commission rates imposed in the HBA,” Salinger wrote.

“In other words, the Court finds that the 3 percent commission promised to MV upon any sale or other transfer of the property is not fair compensation for the limited services that MV promises to provide to the selling homeowner, and thus that most of this payment to MV represents implicit interests on MV’s advance payment to the homeowner.

“So the record shows that MV provides contracting homeowners with a service that has a market value of only a few hundred dollars, yet charges them thousands or tens of thousands of dollars if they sell or otherwise convey their home within 40 years,” he added.

Under MV Realty’s homeowner benefit agreements, if a buyer broker is involved in the transaction, the total commission must add up to at least 6 percent of the total sales price with MV Realty receiving at least 3 percent of the sales price or 3 percent of the property’s value at the time the agreement is signed, whichever is greater. MV Realty determines the property’s value.

If there is no buyer broker involved, MV Realty receives a minimum 6 percent of the total sales price or 3 percent of the property’s value at the time the agreement is signed, whichever is greater.

If the homeowner decides to list the home with another brokerage, the homeowner owes MV Realty 3 percent of the property’s value at the time the agreement is signed, which can add up to thousands of dollars.

The agreement binds any future heirs of a property and if a homeowner defaults, the agreement specifies that MV Realty will impose a lien or a mortgage on the property for the amounts owed. The agreement includes an arbitration clause and precludes the homeowner from participating in any class action litigation against MV Realty.

The brokerage also charges an early-termination fee equal to 3 percent of the value of the home if the homeowner decides to cancel the contract before the 40 years are up.

“[T]he mortgages that Massachusetts homeowners have apparently been tricked into conveying to MV have adverse consequences for those homeowners,” Salinger wrote. “A Massachusetts property owner’s grant of a mortgage to MV has the effect of transferring legal title in the property to MV, leaving the homeowner ‘with only the equity of redemption.’ That means the homeowner can no longer finance, refinance, or convey their home without MV’s agreement.”

Utah is on track to be the first state in the nation to adopt legislation aimed at preventing real estate brokerages from paying prospective clients to enter into long-term listing agreements enforceable by lien, with similar legislation in the works in nine additional states.

On Monday, KIRO 7 News reported that the Washington State Senate had unanimously passed Substitute Senate Bill 5399, which bans future right-to-list contracts from exceeding two years and says that such contracts “[s]hall not run with title to real property” and are not binding on any subsequent owner of the property. The bill now heads to the state’s House Consumer Protection & Business Committee for review.

“While this bill is well intentioned, MV Realty believes it will deny WA residents a fundamental property right,” a company spokesperson told Inman in an emailed statement.

“The right to list their home is a valuable asset and something that up to this point has been given away. MV instead pays homeowners for the right to list. We support comprehensive regulation of the future listing business and stand ready to work with legislators and regulators to accomplish this.”

Similar bills are under consideration by the Georgia House of Representatives and the New Jersey State Assembly.

Email Andrea V. Brambila.

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