All articles and other materials contained on this website are provided as a courtesy. Readers should not rely on anything contained on this website without consulting an attorney to verify the impact of such information as it relates to that reader. Among other things, laws, regulations, standards of care and other circumstances frequently change. By reviewing these communications, an attorney-client relationship has not been established with the reader. In order to establish that relationship, a retainer agreement must be executed with CRELA or Shannon B. Jones Law Group or Spile, Leff & Goor, LLP

Mortgage Lender Pays $83,000 Penalty for RESPA Violations

A Connecticut mortgage lender recently agreed to pay an $83,000 monetary penalty for violating the Real Estate Settlement Procedures Act (“RESPA”). The lender focused primarily on loss mitigation financing to distressed buyers. Originally, the lender was financed by a hedge fund and therefore, the lender and the hedge fund split the origination fees paid by the consumer. In 2011, the lender ended the arrangement with the hedge fund, but continued to split fees with the hedge fund for loans for the next year. Origination fees on a total of 83 loans were split.

In an unusual manner, the lender reported to the Consumer Financial Protection Bureau that it believed its arrangement was a violation of RESPA for the payment of unearned fees. The lender fully cooperated with CalBRE, which ultimately found in violation of RESPA. The lender paid a settlement of $83,000, which constituted $1,000 per violation.

Drought Advisory

The California Real Estate Legal Alliance, an affiliation between the Shannon B. Jones Law Group (“SBJLG”) and Spile, Leff & Goor, LLP (“SLG”), is pleased to advise that they have posted a Drought Advisory to the CRELA website. It is available to all members of CRELA and clients of SBJLG and SLG.

Court Upholds Award of Approximately $350,000 to Real Estate Brokerage

A California appellate court recently upheld an award of approximately $350,000 to Coldwell Banker based on the express indemnity provision in the listing agreement. In Bardack v. Tomjanovich, the sellers were sued for failing to disclose reports they had regarding their property. The reports were not given to the buyers or their agent, Coldwell Banker. The buyers sued the sellers for nondisclosure. The sellers sued Coldwell Banker on a cross-complaint for indemnity. Coldwell Banker filed a cross-complaint against the sellers seeking reimbursement of attorneys’ fees under the express indemnity provision set forth in the California Association of Realtors’ Listing Agreement. The matter proceeded to trial. The jury found in favor of the plaintiffs. However, the jury found Coldwell Banker had no liability. Coldwell Banker subsequently moved for its attorneys’ fees against the sellers. The trial court awarded approximately $350,000 in fees. The appellate court, in an unpublished decision, upheld the award.

While the decision was unpublished and therefore, we cannot rely upon it, it is a good indication of how a court would handle an award of attorneys’ fees where a seller fails to disclose reports. A complete and detailed summary of this case has been posted to the CRELA website.

Tips for Seniors

The California Bureau of Real Estate (“CalBRE”) has recently published an article entitled, “Tips for California Seniors to Avoid ‘Targeted’ Real Estate Frauds, Including those Involving Home Loans, Rentals, Timeshares, Property Recordings, and Investments Secured by Real Property.” The article is available on the CalBRE website or email CRELA at [email protected] and we will provide a copy.

Agents – Be Aware of Wire Fraud Scam

There is a new wire fraud scam of which real estate professionals need to be aware. Many agents and/or title companies send wiring instructions to their clients to deposit funds into escrow by email. Email hackers are obtaining these emails and sending updated instructions to clients with wiring instructions into their own accounts. Unfortunately, clients believe these emails are coming from agents or the title companies and are wiring their money into the hackers’ accounts. This is creating a lot of issues in transactions.

It is recommended that agents have clients communicate directly with the title company regarding wiring instructions. It is further advised that agents use secure servers to send emails to their clients. For example, agents should consider using their company’s email, as most companies have a secured server which will limit the chances of hacking. Agents should not send emails from publicly accessed emails or through Wi-Fi.

Risk Management Tip Regarding Social Media

Seventy percent (70%) of the online population in the United States is currently utilizing some form of social media. The most popular forms include Facebook, LinkedIn, Twitter and Instagram. While there are innumerable benefits to using social media, there are also detriments, which need to be recognized.

There is a new wave of litigation arising out of social media and claims of defamation. Recently, in a case in California, a jury awarded a plaintiff $2.5 million claiming that the blogger defamed them. (See Obsidian Finance Group, LLC v. Cox 740 Feb 3 1284 (9th Circuit 2014)). While that case was reversed in part on appeal, the point remains the same – the case arises out of a defendant’s objectionable comments on her blog regarding the plaintiffs.

The real estate industry relies heavily on social media. It is strongly recommended that agents use good judgment in their posts on social media. Issues creating concerns include the following: making defamatory statements about real property; making inappropriate comments about clients or other agents; making inaccurate statements; or issuing inappropriate opinions pertaining to the condition or value of property. Agents are encouraged to use social media safely, but to review their submissions before posting to ensure the posts are made with good judgment.

California Bureau of Real Estate Finalizes Cite and Fine Program

Effective July 1, 2014, the California Bureau of Real Estate (“CalBRE”) has finalized its “Cite and Fine Program.” This program will be used for minor and technical violations of the law or regulations that do not involve fraud, dishonesty or loss or injury to a consumer. Examples of such violations would be administrative issues such as failing to inform CalBRE of a change of address, failing to disclose a license number or failing to timely submit periodic business activity reports. A citation can include a corrective order, as well as an administrative fine ranging from $0 to $2,500. The fines are generally to be paid within 30 days. The amount of the fine will be determined by whether the act was inadvertent, deliberate or negligent and whether there it is a repeat offense.

Please note that CRELA is coordinating with CalBRE and will continue to provide updates.

Real Estate Firm Fined $500k Over RESPA Violations

On May 28, 2014, the Consumer Finance Protection Bureau (“CFPB”) ordered the largest real estate company in Alabama to pay a $500,000 civil penalty to settle claims that the company provided inadequate disclosures regarding a relationship with an affiliated title insurance company. CFPB alleged that the real estate company failed to comply with the disclosure provisions of RESPA. CFPB claimed that the disclosure used by the real estate company did not use capital letters or highlight the fact that consumers could obtain services from other providers. This disclosure language was “hidden” within other statements. CFPB also raised concerns that the disclosures include marketing statements that benefitted the affiliated entities.

If real estate companies are affiliated with another real estate service provider, appropriate affiliated business disclosures must be used. RESPA’s Regulation X includes a format on Appendix D, which is acceptable to the CFPB.

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