Colorado Regulator, HUD Voice Legal Concerns Over Marketing Agreements

A Colorado regulator who has led previous crackdowns on captive reinsurance agreements and sham affiliated business arrangements says she has grave concerns about the legality of real estate marketing agreements.
Speaking to more than 100 members of the ""Real Estate Services Providers Council Inc."":http://www.respro.org (RESPRO) Fall Seminar in New Orleans yesterday, ""Colorado Real Estate Division"":http://www.dora.state.co.us/Real-estate/ Director Erin Toll said, ""Real estate marketing agreements look a lot like captive reinsurance agreements which looked a lot like sham affiliated business arrangements.""
Toll has worked closely with the ""Department of Housing and Urban Development"":http://www.hud.gov (HUD) in prosecuting illegal captive reinsurance agreements and sham affiliated business arrangements. She told her audience of real estate affiliated business executives that HUD officials share her concerns that marketing agreements as currently implemented violate the Real Estate Settlement Procedures Act, or RESPA.
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 says, appears to her, and appears to HUD, as an illegal arrangement.
Toll listed several ingredients of agreements she has seen which raise red flags. ""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 high on Toll's list of red flags 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. ""And HUD has authorized me to tell you today that they don't like them either.""
Toll, however, said there are steps real estate services companies can take to make their marketing agreements legal. ""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,"" Toll said. ""The answer is, other industries aren't covered by RESPA. The real estate industry is.""
The ""Real Estate Services Providers Council"":http://www.respro.org (RESPRO) is a national, non-profit trade association of real estate broker-owners, real estate franchisers, mortgage lenders, title insurers and agencies, home builders, technology companies, and home service and settlement service providers ""united to deliver convenient, innovative, and cost-effective services to consumers through strategic alliances across the home buying industry,"" the agency said.