CFPB cracks down on real estate brokerage to tune of $500,000

Real estate brokerages need to be aware of the risks of writing into the contract a title company with which they have either an Affiliated Business Agreement (ABA) or a Marketing Service Agreement (MSA).

In the past, we have issued warnings on this blog that the Consumer Financial Protection Bureau (CFPB) is looking closely at Marketing Service Agreements.

Well, last month the CFPB came down hard on a major real estate company in Alabama. I strongly recommend any broker that refers a title company with which it has either an ABA or an MSA to carefully read the details (Bureau Orders Alabama Realty Firm to Pay $500,000).

While having an ABA or an MSA is not per se a violation of RESPA, it does require that the real estate company provide a written disclosure that makes it clear to the client that: (1) use of the referred company is not required and (2) the client has the right to shop for services.  

In this scenario, RealtySouth was writing the title company name in the contract. They did provide a disclosure, but the required language was buried and the CFPB found that it “did not properly highlight consumers’ rights.”

The key point here is that the consumer was not given the opportunity to choose. I’m sure that most agents reading this are thinking, “I always let my client choose their title company,” and those of you who do this deserve to be commended.

But I assure you that the practice of filling in the title company without properly informing the client of their right to shop and choose occurs daily.

Often buyers call or email us for a quote, only to tell us later that, unbeknownst to them, the title company was already written into the contract by the agent.  

According to last month’s ruling, if said title company has an agreement with the real estate company, they may both be subject to a substantial fine. 

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