What do Agents and Homeowners Need to Know?
How Long is a Typical Brokerage Agreement?
This is obviously something that is negotiated for each transaction. Most are probably for a 3-6 month term, though having a brokerage agreement last a full year would not be unexpected depending upon the nature of the property and the current average days “on the market” for that type of property in the area in which it is located.
Where Do These Excessively Long-Term Agreements Come From?
Real estate is an ever-changing market. Periodically new companies will enter the marketplace with a new angle or pitch:
1960s: Century 21 began providing small to medium brokers with a way to network under a national brand.
1970s: RE/MAX introduced a more generous agent compensation model.
1980s: Coldwell Banker began offering larger local brokerages a way to operate independently while having the benefits of a nationally recognized brand.
1990s: Keller Williams created agent compensation plans that include profit sharing.
2000s: Tech met real estate in a more concerted fashion with online brokerage and public facing sites providing data that was historically limited to multiple listing services (MLSs).
2010s: iBuyers started using algorithms to buy and resell property.
2020s: Companies entered the market to provide financing to allow non-cash buyers to make cash-backed offers.
All of the innovators from the 1900s are still nationally recognized brands. It is too soon to say what the lasting impact of these 21st century changes will be.
Back to the 40 Year Agreements to List . . .
The first such company to make national news was MV Realty. The company is based out of Florida but their website states they have agents in 33 states. They offer a Homeowner Benefit Program® in which they pay cash payments to homeowners for agreeing to use MV Realty should they ever choose to sell their home. Their site discloses that they signed 7,778 contracts in 2021, 32,000 contracts by August 2022, and that they are on track to lock in 100,000 contracts by the third quarter of 2023. The company claims to be just one more disruptor in the real estate landscape.
What are the homeowners really receiving? The official program provided a payment of up to $5,000. Actual reported payments seem significantly less than this. Reported payments found in news reporting: Eleanor Gardner - $1,000; Patricia Bandy - $900; Debbie Chasteen - $485; Georgette Snowden - $391. The largest payment I found was $1,300.
Pending Legal Actions and Investigations Which Describe the Program and the Issues
The Florida Attorney General filed suit in November of 2022 against MV Realty and the individuals related to the company claiming that the Homeowner Benefit Program® (HBA) is deceptive, unfair, and unconscionable. The Florida AG specifically cited:
· The program takes a substantial portion of the home’s equity (3-6%) in exchange for nominal payments.
· The Memorandum of HBA filed in the county records hurts a homeowner’s ability to refinance the property, access equity through a line of credit, or enter into a reverse mortgage to eliminate their mortgage payments. MV Realty has historically refused to sign documents allowing homeowners to take out or refinance a loan against their property.
· The company only recently added a reference on their website to anything being filed in the county records but specifically stated it was a “memorandum” and not a lien despite the fact that they know it has the same practical effect as a lien.
· The telemarketing practices, including using phone numbers that appear to be local, violate Florida telemarketing regulations and they ignored the Do-Not-Call registry requirements.
· Homeowners are told the program has no cost. In realty, homeowners may have to pay even if the property is lost to foreclosure or transferred in some other way that the owner does not think of as a “sale” of the property, like transfers upon the death of the owner.
· The Florida real estate license law prohibits the filing of a document affecting the title for the purposes of collecting a commission or coercing a payment to a broker.
· The documents being filed do not meet state recording requirements for the types of liens that can be filed and do not meet the requirement for the lien to be binding on future owners (run with the land).
· Homeowners are provided with an online sample of a listing agreement. There is no signed agreement and no agreed upon list price which is an essential term.
· The company calls the amount paid a “loan alternative.” They do this to attempt to avoid the program being considered a loan since paying 3-6% of the property's value in exchange for a few hundred dollars would clearly violate any state or federal usury laws.
· The 3 day right to cancel (which the company added in 2021) cannot be used since one copy of the document is brought to the home by a notary, who does not explain the terms of the document, and the homeowner is not provided a copy of the document until well past 3 days after it was signed.
· Many of the people entering into this program are seniors or people for whom English is a second language.
Massachusetts and Pennsylvania both filed suit December 13, 2022 arguing similarly and including many of the program descriptions and actual mortgages filed in their state deed records as exhibits to their lawsuits. Lawsuit links: Massachusetts & Pennsylvania
The North Carolina and Georgia Attorneys General have also confirmed that they are looking into MV Realty.
On December 21, 2022 US Sen. Sherrod Brown (D-OH), Chair of the Senate Finance Committee and Senate Banking, Housing & Urban Affairs Committee called on the Federal Trade Commission and the Consumer Financial Protection Bureau to investigate the agreements to list being used by companies like MV Realty.
MV Realty is Not the only Brokerage Company Filing Listing Memos . . .
This memorandum was filed in the Georgia records. In addition to the possible similarities to the MV Realty program, it is not properly executed for Georgia recording. It was e-signed by the owner. It was e-witnessed. It was e-notarized by a notary located in Texas. None of this meets Georgia requirements. The document states that it was signed “in the presence of” the witness and the notary but this is clearly not the case.
Despite the obvious failings of the document, the title companies cannot overlook the filing and the closing attorney has to have a release of the document in order to close.
“Investors” are also Creating Title Issues with County Filings . . .
Note that this filing was signed by the person claiming the interest and not by the owner of the property who was purportedly giving up an interest in the property. That is highly unusual.
Warranty Deeds conveying title and Security Deeds giving an interest in property for a loan require a witness and a notary. Affidavits, which are not used to convey an interest in property, do not have a witness.
As with the brokerage memos, the title companies cannot ignore these documents. The “interest” must be released and some amount of money is invariably paid to get that release.
What is the Take Away?
I have struggled with this question during my podcast discussion and in trying to finish this article. The three court filings and Senate investigation request all happened within the last month. This was after we recorded the podcast and after I started writing this article. I used all of that as my excuse to put off the finale but here we are. So here are my parting thoughts:
1. Homeowners need to read what they are signing. They should not sign anything they have not reviewed. The more dismissive and rushed the process, the better the chances something is hidden or not fully explained.
2. There is no such thing as a free lunch. If something seems to be too good to be true, it is. You can’t get something for nothing. Insert whatever other trite phrase that means people should question why they are receiving money and what it is going to cost them in the end.
3. My strong sense of personal responsibility is tempered by my genuine concern for older persons who are less capable or more trusting, for those who do not speak English as a first language, and for those suffering financially and desperate for relief. We need to warn and educate non-native speakers and people seeking financial solutions. Feel free to share this article or one of the dozens on the first page of a Google search. We need to protect our seniors.
4. Listing agents should seriously consider having title run during the listing process. Time is your friend if the homeowner thinks they can negotiate with the lienholder. You may find that it is a listing not worth taking if the seller is unwilling or unable to pay the money demanded to clear the title.
Want to listen to this and other real estate related topics? Check out my podcast. New to podcasts but want to know where to get started? Check this site for step by step help.
Wishing you a Happy New year. I hope each day of the coming year is filled with success and prosperity. - Cheryl Conner King
Cheryl Conner King
Closing Attorney | Partner, Thomas & Brown | Podcaster | REALTOR®
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