Cendant group hit with lawsuit for $84.50

October 7, 2002

But class-action victory could cost millions in natural hazard disclosure report rebates

Inman News Features

A homeowner in Southern California has filed a lawsuit alleging that an NRT-affiliated company overcharged her for a natural hazards disclosure report that, according to the legal complaint, is inexpensive to prepare and based entirely on easily accessible public records.

The subject matter of the lawsuit draws attention to a company's alleged practice of charging home sellers a higher price for a particular transaction-related service when the seller is represented by a brokerage company affiliated with the service provider.

The homeowner who filed the lawsuit listed her home for sale with Coldwell Banker Residential Brokerage in Southern California, then purchased a natural hazards disclosure report from Property ID, an affiliated company of the NRT-owned Coldwell Banker brokerage, according to the complaint. She paid $114 through escrow for the report, but later learned that Property ID charges $99 for the same report if the home seller pays for it directly. She also learned that also-affiliated Real Estate Disclosures charges $39 for the same report and that competitors charge $29.50 for reports that also comply with state law, again according to the complaint.

The $84.50 difference between $114 and $29.50 might not seem worthy of a full-press lawsuit, especially in the context of a costly California home sale, but the plaintiff is seeking class-action status on behalf of all California homeowners who sold a home through a Cendant brokerage and purchased a natural hazard disclosure statement from Property ID. Class-action status could put millions of dollars at stake.

The lawsuit doesn't allege price gouging; it charges the defendants with breach of fiduciary duty, aiding and abetting breach of fiduciary duty and unfair competition.

The lawsuit names a group of "Cendant defendants" that includes Cendant Corp., Coldwell Banker Real Estate Corp., Century 21 Real Estate Corp., ERA Franchise Systems, NRT, Coldwell Banker Residential Brokerage and a group of "Property ID defendants" that includes that company and its owners.

The complaint alleges that the defendants induce home sellers to purchase overpriced reports and that Property ID charges home sellers who hire a Cendant-affiliated real estate broker more money than it charges other home owners for essentially the same report.

"The Property ID defendants have been able to charge such exorbitant prices because real estate brokers and agents associated with the Cendant defendants, who are fiduciaries for the client homeowners, have been directed to encourage their clients to buy reports prepared by the Property ID defendants and to conceal from their clients that the amount charged for such report is far above the price for reports charged by competitors of the Property ID defendants," the complaint alleges.

The complaint notes that Real Estate Disclosures is "nothing more than Property ID operating under a different name for purposes of competing for sales of natural hazard disclosure services to customers represented by real estate brokers and agents not affiliated with the Cendant defendants."

An NRT spokesperson said Cendant does not comment on litigation, but will be very aggressive in its response to the lawsuit.

"Property ID believes the complaint is completely without merit, and they will seek to have the matter dismissed. Both Property ID and Cendant are reviewing legal options and will be very aggressive in their response to this litigation," he said.

California law requires home sellers (or the seller's broker or agent) to disclose to prospective buyers whether the home is located in certain special or designated areas prone to geological hazards, flooding, fire or seismic activity. Sellers (or agents) who lack knowledge about such matters can provide a third-party natural hazards disclosure report in lieu of personally answering questions about natural hazards zones and areas that affect the home. Both the content and format of the report are specified by state law.

Virtually every home seller in the state elects to purchase a third-party report rather than completing the form. The huge demand for such reports—Californians closed more than 500,000 home sales last year—supports a significant cottage industry of companies that prepare and sell these reports to home sellers.

Copyright: Inman News Service

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