WASHINGTON, D.C. — U.S. Senator Sen. Tina Smith (D-MN), Chair of the Senate Subcommittee on Housing, Transportation, and Urban Development, along with Sen. Sherrod Brown (D-OH), and Sen. Ron Wyden (D-OR), sent a letter to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) requesting a review of real estate brokerage firms’ use of exclusive listing agreements.
The letter follows several reports of companies like MV Realty misleading families into entering 40-year exclusive listing agreements, which can make it difficult for homeowners to refinance and often result in them losing out on up to three percent of their home’s value when they resell.
“MV Realty, and companies like it, take tens of thousands of dollars from homeowners in exchange for a minimal up-front payment. By advertising these agreements as a ‘loan alternative,’ companies are attempting to avoid the legal limitations on lending while in essence charging borrowers onerous rates,” wrote the Senators. “We urge the CFPB and FTC to work with state attorneys general to review whether these listing agreements and business practices violate federal consumer protection laws, including prohibitions against unfair, deceptive, or abusive acts and practices, and to take appropriate action where violations are found.”
A copy of the letter is available here and below:
The Honorable Lina Khan The Honorable Rohit Chopra
Chair Director
Federal Trade Commission Consumer Financial Protection Bureau
We are writing regarding recent reports that some real estate brokerage firms are misleading families into entering exclusive listing agreements, which exploit and deprive them of profits that they would earn from selling their homes.
The COVID-19 pandemic caused financial hardships for millions of American families, particularly lower- and middle-income households. The dire circumstances families encounter has created an opportunity for companies to take advantage of struggling homeowners.
According to recent reports, there is a growing trend within the real estate industry marketing exclusive 40-year listing agreements as a “loan alternative.”[1] Companies, like MV Realty, offer consumers as little as $300 in exchange for entering into a 40-year exclusive listing agreement on the consumer’s home.[2] Consumers are told that there is no obligation to return the cash, and they owe nothing in return unless and until they sell their home.[3] What MV Realty does not fully disclose to consumers is that during the course of the 40-year term, if the home is sold for any reason – not just the consumer listing the property, but also if the home is foreclosed upon, or if the owner passes – and MV Realty is not used, then the homeowner, or their heirs, will be obligated to pay three percent of the value of the home as a penalty.[4]
Further, many consumers report that MV Realty does not disclose that these agreements are filed in the public record.[5]Lenders often consider the agreements to be a lien on the consumer’s home and thereby a disqualification when the consumer attempts to refinance their home or otherwise access their home equity through a line of credit or a reverse mortgage.[6]Failing to disclose or misleading consumers about the way that these listing agreements will slow or prevent a consumer from refinancing or tapping into their home equity – denying them either the opportunity to save money or to access much-needed capital.
MV Realty, and companies like it, take tens of thousands of dollars from homeowners in exchange for a minimal up-front payment. By advertising these agreements as a “loan alternative,” companies are attempting to avoid the legal limitations on lending while in essence charging borrowers onerous rates.[7] Sadly, exclusive listing companies are now a national problem – expanding their, affecting consumers across state lines. MV Realty now operates in 33 states[8] and has reportedly issued 30,000 exclusive listing agreements.[9]
Recent reporting raises serious concerns about potentially predatory and coercive practices by real estate firms, like MV Realty, and several state attorneys general are taking action.[10] We urge the CFPB and FTC to work with state attorneys general to review whether these listing agreements and business practices violate federal consumer protection laws, including prohibitions against unfair, deceptive, or abusive acts and practices, and to take appropriate action where violations are found.
Thank you for your prompt attention to this important issue.
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