The Attorneys General in Florida, Massachusetts, North Carolina, Ohio and Pennsylvania have filed complaints for relief against a real estate firm for deceptive and unfair business practices targeting homeowners. The lawsuits allege the firm misleads and confuses homeowners through its “Homeowner Benefit Program.”
As reported in the complaints, under the program, the homeowner receives a small cash payment between $300 and $5,000 as a “loan alternative” from the real estate firm. In exchange, the homeowner signs a contract that requires the homeowner to use the real estate firm as their exclusive listing broker for their home for the next 40 YEARS.
In short, that means if the homeowner decides to sell their house sometime in the future, the firm is entitled to list the home for a 3% commission, which is separate and apart from the commission earned by a cooperating buyer’s agent. If the homeowner breaks the agreement early, the contract obligates the homeowner to pay the firm up to 6% of the appraised value of the home.
The agreement, once signed by the homeowner, is memorialized by recording a memorandum against the property to serve as public notice of the homeowner’s obligations to the firm. The memorandum creates a cloud on the title to the subject property that must be eliminated during a refinance or sale, which undermines the homeowner’s property rights and limits the homeowner’s ability to refinance or otherwise access home equity.
The title insurance industry, through the American Land Title Association (ALTA), supports efforts to protect consumers by prohibiting the filing of unfair real estate fee agreements in property records — a practice that creates impediments and increases the cost and complexity of selling, refinance and transferring real estate.
In fact, ALTA, as part of a broader coalition including other trades and advocacy groups, has developed model legislation prohibiting use of unfair service agreements and advocated for passage of this legislation by state lawmakers. The model bill concludes with the following provisions:
Section 205. Recording of Court Order. If an unfair service agreement or a notice or memorandum thereof is recorded in this state, any party with an interest in the real property that is the subject of that agreement may apply to a [district] court in the county where the recording exists to record a court order declaring the agreement unenforceable.
Section 206. Rights of Recovery. If an unfair service agreement or a notice or memorandum thereof is recorded in this state, any party with an interest in the real property that is the subject of that agreement may recover such actual damages, costs and attorney’s fees as may be proven against the service provider who recorded the agreement.
More than twenty states have introduced legislation on this issue in 2023. State law makers are encouraged to use the model bill to pass legislation to protect homeowners in their jurisdiction.
Original article appeared here: https://fraudinsights.fnf.com/vol18iss06/article2.htm
