A lawsuit is what prompted the state to look into whether real estate brokerage companies are requiring title companies to pay for referrals.
Re/Max International Inc. filed the suit against a California title company, First American Residential Group Inc., on March 20 in Denver District Court.
The suit claims that First American didn’t fulfill the terms of a marketing contract requiring it to pay Re/Max $1.35 million for marketing its services to Re/Max franchisees.
Such marketing contracts are being investigated by the Colorado Division of Real Estate. The division has subpoenaed records from Re/Max International and First American Residential, as well as eight Colorado real estate brokerages.
Erin Toll, the division’s director, wants to look at marketing agreements the companies have with real estate settlement-service providers, such as title and mortgage companies.
Toll said a copy of the lawsuit was sent to her anonymously.
The investigation is similar to one she launched more than two years ago as the state’s deputy insurance commissioner. That probe resulted in the U.S. Housing and Urban Development Department settling at least a dozen kickback cases in 2005.
Title insurance, which typically costs home sellers between $500 and $1,000, protects lenders and owners against losses from property-ownership disputes. If real estate firms force title companies to pay them for referrals, the cost for title insurance stays high, hurting consumers, Toll said.
Re/Max International claims in its lawsuit that First American made the first installment of $660,000 in connection with its marketing contract but did not make the second payment of $693,000.
Re/Max International started out as a brokerage in Colorado in 1973. It converted to the franchising model in 1978 and has more than 6,000 franchises in 67 countries.
It agreed, among other things, 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.
In a letter dated April 26, 2007, First American notified Re/Max that it was terminating the marketing contract. It cited a clause that allowed it to end the contract if legal or regulatory action alleging a violation of the Real Estate Settlement Procedures Act is taken.
The lawsuit states that no action alleging a violation of the act had been taken when the lawsuit was filed.
Re/Max International is a franchisor, not a brokerage firm, so the marketing contract is legal, said Geoff Lewis, senior vice president and general counsel for the company.
“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.”
Toll said that because the effects of the marketing agreement trickle down to brokers working for Re/Max franchises, the act applies to the company.
Representatives from First American declined to comment.
Other real estate companies issued subpoenas include Slifer Smith & Frampton in Avon, Fuller Towne & Country Properties in Greenwood Village and Coldwell Banker Residential Brokerage in Denver.
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
