For Whom The Toll Bells

Erin Toll, a BLB fave, is back in the trade news again, and, as might be expected, it's not because she's shilling for businesses. Ms. Toll, the Director of Real Estate for the State of Colorado, was last seen running scofflaws out of the mortgage brokerage business, following her death match with the title insurance industry during her stint as Deputy Insurance Commissioner.

These days, she smells a RESPA rat in Colorado, and she’s about to go DEFCON 1 on it.

Speaking in New Orleans to more than 100 members of the Real Estate Services Providers Council, Inc. –or RESPRO — Toll said that real estate marketing agreements “look a lot like captive reinsurance agreements, which looked a lot like sham affiliated business arrangements.” Toll also suggested that such agreements violate the Real Estate Settlement Procedures Act.

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 said, appears to her — and, just as importantly, appears to HUD — to be an illegal arrangement.

“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 troubling, Toll said, 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, who said that HUD officials share her concern over possible RESPA violations tied to the agreements. “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.

It never ceases to amaze me, how clear is the “spirit” of the anti-referral provisions of RESPA and how impure is the spirit of the industry participants who think they’ve found the next-best-thing to circumvent those provisions. As I’ve reiterated repeatedly, all these schemes are nothing more than invitations for civil money penalties. Not that such worries will stop the flow of them. No matter how many times HUD and/or state regulators like Ms. Toll slap the hands of offenders for one discredited scheme or another, a new one pops up. HUD must feel like it’s playing regulatory “Whack-A-Mole.”

Ms. Toll’s parting comment, in answer to an audience member’s question, is one near and dear to my heart, being a line I’ve used so many times over the years that I was beginning to wonder if I, like Denny Crane, might have “the Mad Cow.”

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,” said Toll. “The answer is, other industries aren’t covered by RESPA. The real estate industry is.”

She diplomatically refused to add: “This law's been around for over thirty years, for crying out loud! If this is news to you, get a job in the fast food industry, Bozo!”

I'll bet she wanted to, though.