Home Warranty Kickbacks Investigation

The Department of Housing and Urban Development (HUD) recently released an “interpretative rule” with respect to so-called “home warranties.”

These “warranties” are offered to home buyers.  The home buyer pays the home warranty company a set yearly fee, and the company then pays to fix things if they break  This seems like a good deal for home buyers, but it appears that there is a widespread practice in the industry of giving "kickback" payments to real estate agents and brokers whenever they sell a “home warranty” to a home buyer.

What this means is that the home buyer may not get the best home warranty for the price, but rather gets the one that makes the most money for the real estate broker or real estate agent.

HUD phrased it like this:

“. . .[a]s a real estate broker and agent hold positions of influence in the real estate transaction, a homebuyer or seller is more likely to accept the broker’s or agent’s promotion or recommendation of a settlement service provider.  Therefore, marketing performed by a real estate broker or agent on behalf of [a Home Warranty Company] to sell a homeowner warranty to particular homebuyers or sellers is a ‘referral’ to a settlement service provider.  Accordingly, in a transaction involving a federally related mortgage loan, [a Home Warranty Company’s] compensation of a real estate broker or agent for marketing services that are directed to particular homebuyers or sellers would be a payment that violates section 8 of RESPA as an illegal kickback for a referral of settlement service business.”  

RESPA is the “Real Estate Settlement Procedures Act” and requires agents, brokers, etc. to disclose certain information about the purchase of a home.  According to the RESPA website:

“RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services. RESPA is a HUD consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD.”

http://www.hud.gov/offices/hsg/rmra/res/respa_hm.cfm

If you recently purchased a home, and bought the home warranty that your agent or broker told you to buy, we would like to talk to you, as we are investigating this matter.  Please call our attorneys at 800.965.1461, or fill out the short and confidential form on the right side of this page.

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