According to a Denver Post article, Re/Max Suit Sparked State Probe, Re/Max is suing First American for $1.35 million for violating the terms of a marketing contract.  First American made the first payment of $660,000, then terminated the contract citing a clause that allows it to be cancelled if "legal or regulatory action alleging a violation of the Real Estate Settlement Procedures Act is taken." The lawsuit alleges that no RESPA violation had been alleged when First American decided to terminate the contract... but that could be coming.  Erin Toll, the director of the Colorado Division of Real Estate, was anonymously sent a copy of the lawsuit.  Toll was formerly the Colorado deputy insurance commissioner who's similar investigation resulted in at least a dozen kickback cases settled by the Department of Housing and Urban Development in 2005. 

Apparently, the marketing contract required Re/Max to promote and advertise First American as the "exclusive Re/Max supplier for title services" in all brochures, catalogs, convention materials and other print media wherever Re/Max promotes other exclusive suppliers.  If Re/Max is referring orders to First American in return for payment of the "marketing fee," that would certainly seem to be a violation of RESPA. However, Re/Max senior vice president and general counsel, Geoff Lewis said that Re/Max International is a franchisor, not a brokerage firm, so the marketing contract is legal.

"We sell franchises that are independently owned and operated to local real estate brokerages. We're not engaged in the real estate business," Lewis said. "We're very comfortable with the agreement, or we wouldn't have filed the suit to enforce it."

To me, this claim seems to be absurd. Re/Max is claiming that under the contract they are required to advertise First American as their exclusive supplier of title services, but because the franchises they sell are independently owned and operated they can't actually require their brokers to make First American an exclusive provider.  So what exactly is the point of the marketing agreement?  There must have been some understanding between the companies that this would translate into orders for First American - so isn't that a RESPA violation?

My impression is that with all of the scrutiny the industry is under for paying illegal kickbacks, someone at First American came to their senses with respect to these marketing contracts and decided to pull the plug before they got caught.  Obviously, if First American cited the clause in the contract allowing them to terminate the agreement if there was an alleged RESPA violation, they believed that agreement would not withstand HUD scrutiny ... and I agree. 

Re/Max, on the other hand, decided to waive a big red flag, screaming "look at us, we violated RESPA," when they filed the lawsuit.  They just couldn't leave well enough alone.  They made $660,000, but they got greedy and wanted the rest.  Now they might just get more than they bargained for... they might get to play the leading role in the next big HUD investigation. They have tipped off the regulators to something that may have otherwise gone unnoticed. 

Either Re/Max was charging First American to advertise them as something that they had no authority to actually do - make them an exclusive supplier of title services - or they violated RESPA.  That is not a good position to be in, in my opinion.  Regardless, there is clearly something not quite Kosher going on with this marketing contract and the regulators are now aware of it. 

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com