Recent real estate kickback ruling could trouble future home buyers

By Olivia Olsen | Aug 13, 2017

The California First District Court of Appeal recently ruled in favor of real estate brokers J. Rockcliff Inc. and Mason McDuffie Real Estate in their appeal to hold arbitration in a matter related to two similar class action lawsuits brought by homeowners. 

The original suits, deemed “materially identical,” were filed against several real estate and title companies for their alleged misuse of the software Transaction Point. The web-based software developed for real estate is advertised on its website to “automate the entire real estate transaction.” Developed by Real Estate Digital, whose list of tools include reDataVault and rDesk Websites, the software aimed to reduce liability risk.

However, the homeowners in the suit said defendants added kickback fees to the closing costs and presented them as sub-license fees through the software.

The defendants requested arbitration in the matters, but a trial court judge denied the motion. An appeal was made by the companies (J. Rockcliff and Mason McDuffie were the only two named in the appeal), and the issue was reviewed. 

Three different arbitration clauses were considered by both courts, residential listing agreement (RLA), and two different residential purchase agreement (RPA) clauses from 2007 and 2010. The trial court decided that only the 2010 RPA was applicable, whereas the appeals court stated all three were valid clauses for arbitration.

Though negotiations between the parties is likely to commence, the ramifications of the misuse of the software and the court’s ruling could continue to affect California homeowners.

“California consumers need to be aware that the courts are going to enforce arbitration clauses contained in real estate contracts,” a representative for the California Department of Consumer Affairs Office of Public Affairs told the Northern California Record

"Unfortunately, the burden of research may be placed on the home buyer when it comes to understanding if all parts of your real estate deal are legitimate. The California Bureau of Real Estate believes that most, if not all, real estate contracts include such language.” 

When it comes to questionable fees, the department warns home buyers, “...consumers should expect that arbitration is a real possibility if a conflict arises in a real estate transaction.” She goes on to summarize that “if a consumer signs an arbitration clause, they can expect arbitration.”

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