Real Estate Settlement Procedures Act
In Re: Freedom Mortgage Corporation and Realty Connect USA Long Island Inc.
Date: Aug. 17, 2023
Issue: Freedom Mortgage Corporation (Freedom) and Realty Connect USA Long Island Inc’s consent orders with the Consumer Financial Protection Bureau (CFPB) over Real Estate Settlement Procedures Act (RESPA) allegations.
Case Summary: Freedom Mortgage Corporation and Realty Connect USA Long Island, Inc. agreed to pay $1.75 million and $200,000, respectively, to resolve CFPB allegations of violating RESPA, in CFPB’s first consent order involving RESPA allegation in over five years.
CFPB alleged Freedom illegally offered incentives to Realty Connect’s agents and brokers in exchange for mortgage referrals. Section 8(a) of RESPA prohibits giving things of value for referrals of business incident to or part of a settlement service involving federally related mortgage loans. Freedom is a residential mortgage loan originator and servicer based in Florida. Realty Connect is a real estate brokerage firm.
According to CFPB, Freedom paid thousands of dollars per month to provide brokerages and real estate agents for a subscription service for free. The subscription service, which would have cost real estate agents $300 per month, allegedly provided Realty Connect access to property reports, sales comparables, and foreclosure data. More than 100 Realty Connect agents and brokers accepted the subscription under the requirement they would pair with a Freedom loan officer. In its consent order, CFPB explained “the Realty Connect real estate agents and brokers who accepted free access to the subscription made more than 400 mortgage referrals to Freedom during the relevant time period.”
Second, CFPB alleged Freedom hosted and subsidized events for real estate brokers and agents where the mortgage company paid for food beverages, alcohol, and entertainment. According to the consent order, Realty Connect brokers and agents attended an event hosted and paid for by Freedom in June 2019. Freedom allegedly paid more than $6,300 for an event where a select guest list of agents who referred the most mortgage origination or who were new agents were invited.
Finally, the CFPB alleged Freedom maintained marketing service agreements (MSAs) with more than 40 real estate brokerage companies, including Realty Connect. Under this agreement, Freedom paid Realty Connect $6,000 a month from 2017 to 2022, in exchange for referrals. According to the consent order, “the purpose and effect of Realty Connect giving Freedom privileged access to its agents under the MSA was to maintain or increase the agents’ mortgage referrals.” CFPB also claimed Freedom used the MSAs as a mechanism to pay referral fees rather than to pay for marketing services. CFPB claimed Freedom paid approximately $90,000 during the relevant time period.
Under the consent order terms, Freedom and Realty Mortgage did not admit to or deny CFPB’s allegations of violating RESPA. Freedom and Realty Mortgage agreed to submit a comprehensive compliance plan to ensure compliance with all relevant laws CFPB enforces.
Bottom Line: It has been more than five years since CFPB has issued a consent order based on alleged violations of Section 8 of RESPA.
Documents:
Consent Order (Freedom)
Consent Order (Realty Connect)
