In Minnesota, enforcement actions against real estate service companies have skyrocketed. Behind that alarming trend is not only an overly ambitious regulator, but also a determined industry foe. Savvy businesses can guard against those threats.
The crackdown in Minnesota is driven in part by the Consumer Advocates in American Real Estate (CAARE). The group accuses the real estate industry of “overcharging for real estate commissions, eliminating important safeguards, and preying upon their own clients.” CAARE’s successes in the past 12 months include consent cease-and-desist orders against two real estate agents who—GASP—accepted a single boat ride (“which included food”) in July 2013 from a title company called Entitle. That astonishingly brazen chicanery cost each agent $2,500 in civil penalties, plus whatever they had to pay their attorneys. Liberty Title, Inc., got socked with a $45,000 civil penalty for providing a real estate agent with ten meals and a $980 “beverage upgrade.”
As proof of these purported infractions, the Minnesota Commissioner of Commerce resorted to what can only be described as fuzzy math. The commissioner examined the rates at which the targets of the promotions referred business to the sponsoring entity, both before and after the meals at issue. Many of the usage rates varied only minimally. For example, one went from 67% to 87%, out of samples of nine and 15 transactions. Nonetheless, that was enough for the commissioner to deem those incriminating patterns of conduct, which in turn indirectly proved prohibited referrals.
Smart companies should be aware of their environment and how adversaries can use regulators as a tool to hurt your business. For common promotional activities like meals, companies can do them as long as it is clear that they “are not conditioned on the referral of business and . . . do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto[.]” The types of factors that regulators may view as red flags include a consistent pattern of meals, repeated food or entertainment events with the same agent in a short period of time, lavish accommodations, and a pronounced numerical correlation between the number and timing of meals and the stream of referrals.