New York --(Wall Street Journal Developments Blog)--
A small Kentucky real estate law firm has found itself the latest target in renewed federal scrutiny of referrals in the housing industry.
The Consumer Financial Protection Bureau on Thursday sued Louisville-based law firm Borders & Borders PLC, accusing it of paying illegal kickbacks to real-estate agents and mortgage brokers in exchange for work.
The lawsuit is the agency’s third enforcement case involving alleged kickbacks in the real-estate industry, highlighting how the new regulator is stepping up its oversight.
The lawsuit accuses Borders & Borders of operating nine joint venture title insurance companies with local real-estate agents and mortgage brokers and splitting the profits with them. The lawsuit says the joint ventures, which were shut down in 2011, did little actual work, existing as a way to pay for referrals.
Borders & Borders adamantly disputed the regulator’s allegations, saying that the business relationships were legitimate, disclosed to consumers and complied with federal real-estate law.
“The CFPB is out on a limb with this lawsuit,” said Morgan Ward, a lawyer with Stites & Harbison PLLC, who represents Borders & Borders. “It has made allegations that are simply not true from a factual standpoint, and its interpretation of the law is incorrect.”
Mr. Ward also faulted the CFPB for not waiting for a federal appeals court to rule on a case involving the constitutionality of a 1996 Department of Housing and Urban Development policy governing such relationships.
The Dodd-Frank financial law of 2010 gave the CFPB authority over the federal law that bars payments to refer real-estate services. In April, the regulator reached a $15.4 million settlement with four mortgage insurance companies over such referrals. And in May, the CFPB reached a $118,000 settlement with a Dallas home builder over the referral of mortgage-lending business. In both cases, the companies did not admit or deny the allegations made by the regulator.
The regulator “will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses,” said Richard Cordray, the CFPB’s director.
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