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More states are closing in on MV Realty.
Earlier this week, Pennsylvania and Massachusetts became the latest states to file lawsuits against the brokerage for alleged deceptive practices.
MV Realty offers impoverished homeowners cash in exchange for a 40-year contract to list their home and a lien on their property to secure MV Realty’s real estate commission.
The brokerage, which operates in 33 states and has more than 500 licensed agents, is currently under investigation by several state regulators over its “homeowner benefit agreements,” which MV Realty has been offering since 2018. The attorney general of Florida, where MV Realty is based, became the first state to file suit against the company at the end of November.
On Dec. 13, the attorneys general of Pennsylvania and Massachusetts filed similar, separate suits against the brokerage; Pennsylvania’s suit also names MV Realty founder Amanda Zachman as a defendant. In addition, the attorney general of Massachusetts has filed a request for a temporary restraining order and preliminary injunction to ban MV Realty from offering homeowner benefit agreements in the state.
Pennsylvania’s suit accuses the brokerage of violating Pennsylvania’s Unfair Trade Practices and Consumer Protection Law while the Massachusetts case alleges violations of the Massachusetts Consumer Protection Act as well as violation of a small loan law and the state’s Good Funds Statute.
According to Pennsylvania’s complaint, MV Realty has done business with about 1,000 homeowners in the state, most of which have received upfront payments of between $400 and $700.
“Pennsylvania homeowners are falling victim to MV Realty’s calculated deception in hiding the terms of the Homeowner Benefit Program,” said Pennsylvania Attorney General Josh Shapiro in a statement.
“MV Realty is a scam that exploits Pennsylvanians in vulnerable financial situations, and my office isn’t buying it. My office will protect homeowners’ most important asset – the value of their real estate.”
According to Massachusetts’ complaint, MV Realty has sold more than 500 homeowner benefit agreements in the state with an average upfront payment of $1,150.
“MV Realty’s business model and contract terms are unconscionable, targeting elderly and financially vulnerable homeowners who are short on cash, only to leave them with agreements they don’t understand and can’t get out of,” said Massachusetts Attorney General Maura Healey in a statement.
“We are suing to get homeowners out of these contracts, protect our residents from this scheme, and stop this predatory company from doing any more business here in Massachusetts.”
The Pennsylvania complaint seeks to force MV Realty to pay restitution to anyone who has suffered losses as a result of the brokerage’s conduct as well as the state’s investigative and legal costs, void any homeowner benefit agreements signed by consumers in the state, prevent MV Realty from entering into more homeowner benefit agreements with Pennsylvania consumers, strike all MV Realty mortgages recorded on real estate in the state, and fine MV Realty $1,000 for each violation of the state’s consumer protection law and $3,000 for each violation involving a consumer age 60 or older.
The Massachusetts complaint is requesting a permanent injunction barring MV Realty from offering homeowner benefit agreements in the state, an order that MV Realty pay consumers in the amount of their actual costs and damages as well as the state’s investigative and legal costs and civil penalties of $5,000 for each violation of the state’s consumer protection law prohibiting “[u]nfair methods of competition and unfair or deceptive acts or practices.”
“[W]hen our Realtors explain HBAs to clients, they always work in a transparent dialogue to ensure that each client understands the terms of the agreement,” an MV Realty spokesperson told Inman in an emailed statement.
“New and innovative business models, like the HBA, can transform established industries and can sometimes draw questions from critics or outright hostility from those whose existing business model is threatened. However, to suggest that MV Realty has engaged in unfair or deceptive practices is simply false.
“After a full airing of the facts, we are confident that the conclusion will be that MV Realty’s business transactions are in full compliance with Pennsylvania law. As this process moves forward, we remain fully committed to working with Pennsylvania policymakers, including the Attorney General, to discuss appropriate regulations and oversight for the new and emerging business.”
The brokerage issued a similar statement regarding the Massachusetts complaint.
Under MV Realty’s homeowner benefit agreements, the brokerage pays homeowners between $300 and $5,000 (depending on the value of the home) in cash up front for signing a deal in which they agree that if they decide to sell their home anytime in the next 40 years, they will list the home with MV Realty as a transaction broker.
If a buyer broker is involved in the transaction, the total commission must add up to at least 6 percent of the total sales price with MV Realty receiving at least 3 percent of the sales price or 3 percent of the property’s value at the time the agreement is signed, whichever is greater. MV Realty determines the property’s value.
If there is no buyer broker involved, MV Realty receives a minimum 6 percent of the total sales price or 3 percent of the property’s value at the time the agreement is signed, whichever is greater.
If the homeowner decides to list the home with another brokerage, the homeowner owes MV Realty 3 percent of the property’s value at the time the agreement is signed, which can add up to thousands of dollars.
The agreement binds any future heirs of a property and if a homeowner defaults, the agreement specifies that MV Realty will impose a lien or a mortgage on the property for the amounts owed. The agreement includes an arbitration clause and precludes the homeowner from participating in any class action litigation against MV Realty.
The brokerage also charges an early-termination fee equal to 3 percent of the value of the home if the homeowner decides to cancel the contract before the 40 years are up.
“The Homeowner Benefit Agreement terms are far outside the standard practice for the real estate industry, and no reasonable consumer would expect to see these provisions in a contract with their real estate broker,” Pennsylvania’s complaint reads.
“Real estate brokers in Pennsylvania do not typically take a mortgage lien on their clients’ property before ever providing any services to them, but that is exactly what MV Realty does under this contract. Yet instead of disclosing these important terms to consumers upfront, MV Realty buries them in the fine print of their form contract.”
According to the state, Pennsylvania homeowners have said they were “shocked” to learn that MV Realty had recorded a mortgage on their property.
“These homeowners are emphatic that they never would have signed an agreement with MV Realty had they known it involved MV placing a mortgage lien on their home,” the complaint says.
“The mortgages recorded by MV Realty create a substantial burden on homeowners seeking to use the equity in their homes to meet their financial needs. The existence of the mortgage lien can interfere with a homeowner’s ability to obtain financial products that require clear title.
“The terms of the Homeowner Benefit Agreement and associated mortgage also place homeowners at risk of losing a portion of the equity of their home to MV Realty even if they never use the company’s real estate services.”
Moreover, MV Realty has filed suit against at least six Pennsylvania homeowners for allegedly violating the homeowner benefit agreement, according to the complaint. Those suits result in a “lis pendens”— a formal notice of legal action — involving a claim to title of real estate.
“In practice, the filing of a lis pendens makes it very difficult for a seller of real estate to complete a sale, as most buyers will refuse to purchase property with disputed title,” the complaint says.
“MV Realty’s actions are purposefully designed to constrain homeowners’ ability to sell their homes without using MV Realty as an agent,” the complaint adds.
The Massachusetts complaint alleges that MV Realty “targets and aggressively markets the HBA to vulnerable consumers as a ‘loan alternative’” even though the mortgages the brokerage records on properties list MV Realty as a “lender” and the homeowner as a “borrower.”
“The HBA is secured by a power of sale mortgage on the homeowner’s property, which permits non-judicial foreclosure in the event of a breach,” the complaint says.
“Based on the terms of the HBA and MV’s business model, MV is a financial institution pedaling a usurious financial instrument while masquerading as a real estate brokerage firm.”
The Massachusetts complaint emphasizes that MV Realty’s agreements entitle the brokerage to a tenfold repayment of the advance payment they offer consumers, whether or not MV Realty performs any brokerage services, and must be paid even in the event of transfers due to divorce or foreclosure.
The complaint stresses that the commission MV Realty commands through the agreements for its brokerage services is “unusually high” because the 6 percent total commission is 1-2 percent higher than current prevailing rates in the state, MV Realty’s listing agreement includes a “hidden” $500 administrative fee not typically used in the state and that agreement “includes a ‘floor’ commission, which ensures MV its minimum 1,000% repayment even if the market declines.”
Moreover, MV Realty charges a “premium price” for its brokerage services even though its agreements say the brokerage will serve as a type of broker that has fewer obligations than a traditional seller’s agent, according to the complaint.
“A non-agent facilitator is a type of transaction broker that owes no duty of loyalty to the seller, has no obligation to seek the highest price the market will bear, and owes no duty of confidentiality to the seller,” the complaint says.
“In Massachusetts it is extremely rare for home sellers represented by a brokerage to use non-agent facilitators instead of seller’s agents because a seller’s agent is obligated to seek the best value possible for the seller.”
MV Realty’s spokesperson noted that MV Realty has given Pennsylvania HBA clients more than $1.144 million upfront and Massachusetts HBA clients more than $500,000 upfront “that they can use to save, spend or invest as they choose” and that less than one percent of MV’s roughly 1,500 clients in Pennsylvania and more than 550 clients in Massachusetts have filed a complaint against the company.
“No homeowner is under any obligation to ever sell their home, and if they choose not to, MV receives nothing, and the homeowner keeps the up-front payment that was made to them,” the spokesperson said.
“In addition, MV cannot set the price for a home – this is solely up to the homeowner. The HBA agreement simply gives MV the exclusive right to act as their listing agent if, and when, they choose to sell their home and at the same industry commission rate as every other real estate firm in Pennsylvania.
“In other words, MV Realty does exactly the same job as any other residential real estate agent, but just charges less in virtually every instance because the homeowner is paid a fee up-front.”
MV Realty’s spokesperson also said it has “a strong and ongoing commitment to consumer disclosures and is constantly adding to them.
“Our current disclosures include, but are not limited to, clear unambiguous language of the contract itself in a large font that includes the description of the 40-year term, the filing of the memorandum, and the termination fees all in 12-point bolded text.”
The brokerage added that it “recently introduced a recorded phone call requirement with each homeowner wherein they verbally acknowledge the key terms of the HBA before we will close.”
Email Andrea V. Brambila.