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Utah is on track to be the first state in the nation to adopt legislation aimed at preventing real estate brokerages from paying prospective clients to enter into long-term listing agreements enforceable by lien, with similar legislation in the works in nine additional states.
Florida-based MV Realty has allegedly signed more than 35,000 “homeowner benefit agreements” (HBAs), paying prospective clients between $300 and $5,000 in exchange for 40-year contracts to list their homes. MV Realty, which operates in 33 states and has more than 500 licensed agents, is accused of placing liens on some clients’ properties to secure its real estate commission.
In the face of lawsuits by attorneys general in Florida, Pennsylvania, Massachusetts and Ohio, MV Realty announced Monday that it has “paused entering into any new agreements in all states” and has hired an outside law firm “to evaluate and redraft our HBA contract to ensure greater transparency for consumers.”
According to a Dec. 13 complaint by Pennsylvania Attorney General Josh Shapiro, MV Realty’s HBA contract gives the company a security interest in the homeowner’s property through the recording of a mortgage on the home’s title to enforce the contract’s terms.
This mortgage “creates an obstacle to homeowners who are seeking to use their home equity for a loan or to refinance their purchase money mortgage,” Shapiro’s complaint alleged.
Shapiro characterized the terms of MV Realty’s HBA as being “far outside the standard practice for the real estate industry, and no reasonable consumer would expect to see these provisions in a contract with their real estate broker. Real estate brokers in Pennsylvania do not typically take a mortgage lien on their clients’ property before ever providing any services to them, but that is exactly what MV Realty does under this contract. Yet instead of disclosing these important terms to consumers upfront, MV Realty buries them in the fine print of their form contract.”
To ensure other companies aren’t tempted to engage in similar tactics, the American Land Title Association (ALTA) has drafted model legislation it says can serve as a blueprint for states that want to make such agreements unenforceable and prohibit the recording of real estate fee agreements in property records.
ALTA’s model bill also provides for the removal of such agreements, known as Non-Title Record Agreements for Personal Service (NTRAPS), from property records.
On Feb. 16, Utah became the first state to pass legislation based on ALTA’s NTRAPS model bill. Utah’s bill, HB 211, is expected to be signed by Gov. Spencer Cox and go into effect April 1.
Diane Tomb
“Today, the Utah legislature has affirmed that they are committed to protecting homeowners and their largest financial investment,” ALTA CEO Diane Tomb said in a statement. “NTRAPS is a deceitful, predatory practice, and homeowners in Utah can now breathe a sigh of relief that real estate brokerage firms can no longer continue these schemes, which impact homeowners’ future ability to sell or refinance property.”
Cort Ashton, vice president at Cottonwood Title Insurance Agency Inc. and legislative chair of the Utah Land Title Association (ULTA), credited passage of the bill to the collaborative efforts “of many of our industry partners, including the Utah Association of Realtors.”
Cort Ashton
ULTA is “pleased that the state legislature has recognized that this abusive and anti-consumer activity has no place in Utah,” Ashton said in a statement.
An ALTA spokesperson said “substantially similar” legislation has been introduced in California, Colorado, Florida, Georgia, Iowa, Idaho, North Dakota, Tennessee and Washington.
“There are bills in other states that are much narrower and do not address all of ALTA’s concerns,” ALTA spokesperson Megan Hernandez told Inman via email. “We expect introductions in at least five more states this year.”
ALTA says its model bill is drafted broadly enough to protect consumers not only from unfair real estate listing agreements but other questionable business practices.
“While the NTRAPS agreements in the market today are generally real estate listing agreements, other businesses have tried to implement similar business practices in the past,” ALTA says on a website FAQ. “The goal of this legislation is to protect consumers and provide a remedy for existing NTRAPS, while discouraging future unfair and deceptive trade practices in real estate.”
Like ALTA’s model bill, Utah’s legislation does provide exemptions for several types of services and agreements, including:
- Home warranty service agreements
- Insurance contracts
- Agreements for an option to purchase or right of refusal
- Maintenance or repair agreements entered by a homeowners’ association in a common interest community
- Agreements to provide internet or utility equipment or services
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