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Real Estate Marketing Agreements May Run Afoul of RESPA, Colorado Regulator Says

Are real estate marketing agreements a sham and illegal? At least one well-known regulator thinks so: Colorado real estate division director Erin Toll, whose profile rose as she led investigations into captive reinsurance agreements among title insurers in 2006 and 2007. Speaking in New Orleans to more than 100 members of the Real Estate Services Providers Council, Inc. –or RESPRO — Toll said that real estate marketing agreements “look a lot like captive reinsurance agreements, which looked a lot like sham affiliated business arrangements.” Toll also suggested that such agreements violate the Real Estate Settlement Procedures Act. Toll said she first became aware of these agreements, most of which are closely guarded confidential arrangements, when a disagreement between two parties led to a suit in Colorado court. Seeing the previously secret agreement in the court documents led Toll to begin investigating the increasingly popular arrangements. What she saw, the former litigator said, appears to her — and, just as importantly, appears to HUD — to be an illegal arrangement. “First, the exclusivity spelled out in the agreements I have seen is very troubling,” said Toll. “Next, the fluctuating fees based on monthly reports with capture rates sure looks like a referral fee.” Fees given or received for referrals are illegal under RESPA. Also troubling, Toll said, is the secrecy spelled out in many such documents, along with the very high fees paid — as much as $1,000,000 per year. “Each discrete piece of the marketing agreements real estate services companies are entering into may be legal,” said Toll. “But that doesn’t mean that the arrangement as a whole is legal.” “The bottom line is, I don’t like these agreements,” said Toll, who said that HUD officials share her concern over possible RESPA violations tied to the agreements. “If participants were to get rid of the secrecy and eliminate the anti-competitive nature of these agreements, there might be a way to develop an agreement that does not violate RESPA,” she said. When questioned by a member of the audience as to why these agreements are illegal when many other industries utilize similar arrangements, Toll said it all relates to RESPA. “I get this question on a regular basis,” said Toll. “The answer is, other industries aren’t covered by RESPA. The real estate industry is.” Write to Paul Jackson at [email protected].

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