Affiliated Business Arrangements

Companies that are sued in class actions often face two options, neither of which is pleasant: pay money to settle a baseless lawsuit or continue fighting until the court acknowledges the flaws in the case and dismisses it. First American Home Buyers Protection Company recently chose the fight option and won—but only after a years-long battle.
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The real estate industry, being rooted in practices developed over generations, is slow to change. In today’s business climate, inflexibility can prove disastrous. But, last month, the South Carolina Supreme Court moved its real estate industry toward modernity by endorsing a national lender’s internet-refinancing process, which the court found satisfies the state’s existing requirements for attorney involvement.
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Rank-and-file employees in the real estate industry are normally—and understandably—loathe to add yet another form to the flood of documents parties already face at closing. But, once in a while, a lawyer’s insistence on using a new disclosure will pay off and a previously unwelcome paper will successfully ward off a massive legal attack. As the result of a recent court ruling, M&T Bank Corp. finds itself in that very position, thanking its forward-thinking attorneys.
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The results of a recent poll, commissioned by the National Association of Realtors (NAR), show that not only have real estate consumers grown comfortable with affiliated business arrangements but also that lots of clients prefer them. That might encourage doubting real estate companies to rethink their current stances about those sorts of arrangements.
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Prospect Mortgage LLC, a nonbank lender headquartered in Sherman Oaks, California, and the Multi-State Mortgage Committee (MMC), a representative body of state mortgage regulators representing the examination interests of combined states relating to lenders operating in multiple states, announced a $10.1 million settlement between Prospect and 50 state mortgage regulators.
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Last month, RealtySouth, an Alabama brokerage and subsidiary of HomeServices of America, Inc., defeated claims that it violated the Real Estate Settlement Procedures Act (RESPA). RealtySouth supposedly pays incentive fees to its brokers who steer business to its affiliated title company, TitleSouth. Whether this represents a lawful means of encouraging referrals among related entities remains to be seen. At the very least, affiliated real estate companies should be aware of the decision.


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