- Real Estate
Court Gives Realtors Flexibility in Contract Disclosures
Realtors Can Modify Contracts If They Follow the Law
Realtors can modify the wording of disclosure statements they give their clients if the statements meet all legal requirements of the Real Estate Settlement Procedures Act (RESPA), a federal court ruled recently.
RESPA is a federal law designed to prevent kickbacks in the real estate industry that interfere with competition and inflate the cost of transactions.
The law forbids most referrals between realtors, lenders and other service providers. It also requires realtors to give disclosure of their business interests in a deal and to notify clients of all costs they must pay.
The client in the case in Alabama federal court accused a realtor of failing to give proper disclosure about a referral to a title company affiliated with the real estate brokerage.
A salesperson at the brokerage, JRHBW Realty, Inc., showed the buyer a home listed for sale. The salesperson gave the buyer a packet of information that included a buyer's representation agreement and an Affiliated Business Arrangement Disclosure Statement.
The buyer purchased the home and title insurance from a title company affiliated with the brokerage.
The buyer’s later lawsuit said the realtor’s referral to the title insurance company was the same as a kickback because it benefitted both the title company and the brokerage.
He also said the salesperson’s disclosure form did not use the exact RESPA wording, which meant it could not protect the brokerage from liability.
The federal court dismissed the lawsuit, saying the title company benefitted from the referral but did not pay a direct kickback to the salesperson or brokerage. The court also said that although the brokerage used its own wording for its disclosure statement, it met RESPA requirements. They included explaining the relationship with the title insurance company, identifying all potential costs and saying the buyer did not need to use a specific title insurance company.
As a result, the court said JRHBW Realty was protected from liability under RESPA’s safe harbor provisions.
The case was White v. JRHBW Realty, Inc. , No. 2:14-CV-01436-RDP, (N.D. Ala. Sept. 16, 2015).