A Berkshire Hathaway real estate firm based out of Alabama agreed to pay $500,000 in fines in order to settle allegations from a US regulator. The allegations claim that the company never fully informed home buyers that they had the option to shop around for another firm to handle their real estate closings.
The Consumer Financial Protection Bureau said that RealtySouth, based out of Birmingham, Alabama, never adequately informed consumers of their option to choose a title firm in order to provide title insurance and handle the closing process.
HomeServices of America Inc. owns RealtySouth. They are part of the real estate division of Berkshire Hathaway.
On Wednesday, in an order made public, the Consumer Financial Protection Bureau stated the company “strongly encouraged its agents and in certain instances told them they were required to use Realty South’s family of services” – with the ultimate goal of benefiting a title company that they were affiliated with, known as TitleSouth LLC.
The company did not deny or admit to the allegations. They were not immediately available to comment.
This settlement is currently one of several CFPB enforcement cases that allege so-called real estate kickbacks, and it highlights that new regulators are beginning to step up oversight in the mortgage industry. The 2010 Dodd-Frank financial law provides the Consumer Financial Protection Bureau with the authority over federal law that stops kickbacks to real estate service referrals and governs consumer disclosures.
Real estate agencies have the ability to make referrals to companies that they are affiliated with under the federal law that governs real estate closings. But they are required to provide a consumer disclosure form letting them know that they do have the ability to shop around for a different provider.
The disclosure provided by RealtySouth deemphasized the ability of the consumer to choose another provider, alleges the CFPB.
The regulator “will continue to take action against companies that attempt to modify disclosures and keep consumers in the dark,” said Richard Cordray, the CFPB director, in a statement.
For home purchases, title insurance is a general requirement in order to figure out if there’s clear property ownership, and it also offers further protection if someone were to later claim an ownership interest in the property. Title firms typically handle real estate closings very often.
Advocates for consumers have long questioned whether buyers of homes are being overcharged. The US Government accountability office, in 2010, came to the conclusion that the industry of title insurance and their reliance on agents, who sell mortgages and real estate, as well is lawyers, rather than consumers, is a serious potential conflict of interest.