As the saying goes, \u201cthere is no such thing as a free lunch.\u201d It\u2019s one of the main takeaways from the classic Brothers Grimm fairy tale, \u201cRumpelstiltskin.\u201d<\/p>\n\n\n\n
If it has been a minute since you have read the 19th century German fable, here is a quick refresh: A miller brags to the king that his daughter can spin straw into gold. The king then summons the miller\u2019s daughter and locks her in a tower room filled with straw and a spinning wheel with the ultimatum that if all the straw is not turned to gold by morning, he will have her killed. The miller\u2019s daughter tries in vain to spin the straw into gold, but just as she gives up hope, an imp-like man appears in the room and agrees to help the fair maiden out by spinning the straw for her. But in return she must give him her first-born child.<\/p>\n\n\n\n
While the tale ends happily with the miller\u2019s daughter (who goes on to marry the king and become queen) keeping her first-born child, she learns that there is always a price to pay.<\/p>\n\n\n\n
Now let\u2019s put this in housing terms. Imagine you are a homeowner in need of a little extra cash, say somewhere in the ballpark of $300-$5,000, and you come across a website that claims it can give you the cash you need without a loan. But just like \u201cRumpelstiltskin,\u201d there is a catch: You have to sign an agreement saying the firm has the right to list your home if you choose to sell it in the next 40 years.<\/p>\n\n\n\n
\u201cThe way business is done today, somebody will sign a listing agreement and it is good for a certain number of months \u2014 it might be four, it might be six, it just depends on the market,\u201d Ken Trepeta, the executive director of the Real Estate Services Providers Council<\/strong>, said. \u201cIf the home doesn\u2019t sell, then you can renew or go with someone else. It isn\u2019t like this lifetime commitment, like one you would make in a fairy tale.\u201d<\/p>\n\n\n\n As firms look to modernize and revamp the way we buy and sell homes, some companies have turned to cash incentives and right to list agreements to generate new business. The most notable firm taking this route is MV Realty<\/strong> with its Homeowner Benefit Program<\/strong>.<\/p>\n\n\n\n Based in Florida and led by founder and chief sales officer Amanda Zachman, best known as a contestant on reality television series \u201cBig Brother,\u201d MV Realty\u2019s unique business model has its genesis on Wall Street, where David Schiff, the founder of Innovatus brainstormed the idea of packaging revenue generated by real estate agent commissions and selling it to investors, according to a complaint filed by MV Realty against ICP in 2018. <\/p>\n\n\n\n In the complaint, the attorneys for MV Realty say that Schiff first discussed the idea in 2017 with MV Realty\u2019s CEO Tony Mitchell and brokerage co-owner Jonathan Neuman. This idea would become the basis for MV Realty\u2019s HBP (MV does not package and sell its revenue to investors), despite a deal never being finalized with Schiff.<\/p>\n\n\n\n Whether or not MV Realty should be allowed to continue with its operation, as well as why the deal with Schiff and ICP fell through, have been the subject of several lawsuits. However, MV Realty proved that the idea was not originally Schiff\u2019s and had in fact already been patented in 2008, allowing the firm to continue running its HBP. The litigation with ICP concluded in December of 2022 after the parties issued a joint stipulation of dismissal with prejudice. <\/p>\n\n\n\n But MV Realty\u2019s legal woes didn\u2019t end there. The firm is currently under fire from Attorneys General in Florida<\/a>, Massachusetts, and Pennsylvania<\/a>. The lawsuits allege that MV Realty misleads and confuses homeowners through its so-called Homeowner Benefit Program.<\/p>\n\n\n\n \u201cMV Realty conceals in its marketing and sales processes material terms including its ability to foreclose on the home, that the company only acts as a \u2018non-agent facilitator,\u2019 and that if the heirs won\u2019t assume the agreement after a homeowner\u2019s death, MV Realty can foreclose,\u201d according to<\/a> the Massachusetts suit.<\/p>\n\n\n\n \u201cA 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,\u201d the complaint reads.<\/p>\n\n\n\n Under MV Realty\u2019s Homeowner Benefit Agreement<\/a>, in exchange for a cash payment, the homeowner signs over the right to list their home for the next 40 years to MV Realty. This means that if a homeowner decides to sell their house sometime in the next 40 years, MV Realty is entitled to list the home for a 3% commission, which is separate from the commission earned by the buy side agent. If the homeowner breaks the agreement or decides to terminate the agreement early, the homeowner must pay MV Realty 6% of the appraised value of the home.<\/p>\n\n\n\n \u201cTen years from now commissions could be a lot less,\u201d Trepeta said. \u201cYou never know how the market is going to change, and with this, you are stuck paying a fairly high commission to them. When you go to sell, you might be stuck paying a 6% commission to make it fair for the buyer\u2019s agent when everyone else is paying 4.5%\u201d<\/p>\n\n\n\n Since starting the program in August 2020, MV Realty says it has enrolled over 35,000 homeowners in 33 states and has paid homeowners close to $40 million.<\/p>\n\n\n\n MV Realty claims the HBA is a memorandum and not a lien that the firm files on the house \u201cto serve public notice of the homeowner\u2019s obligations under the HBP agreement.\u201d <\/p>\n\n\n\n \u201cWhile the memorandum is not a lien, some jurisdictions may record it as a \u2018lien\u2019 or even as a \u2018mortgage.\u2019 MV cannot control how the various county clerks and\/or states categorize the filing of the memorandum,\u201d a spokesperson for the firm wrote in an email.<\/p>\n\n\n\n However, if the homeowner wishes to refinance the mortgage on their property, they must first contact MV Realty to temporarily subordinate the position of their memorandum.<\/p>\n\n\n\n This caught the attention of the American Land Title Association<\/strong>, whose CEO Diane Tomb said the trade group is concerned about the duration and enforcement of these agreements, as well as consumer understanding of their implications. <\/p>\n\n\n\n \u201cAdditionally, recording these agreements in property records can create a long-term barrier to the transfer or financing of real estate or hamper estate administration. Non-Title Recorded Agreements for Personal Services (NTRAPS) and the recording of such agreements undermine a homeowner\u2019s property rights,\u201d Tomb wrote in an email.<\/p>\n\n\n\n In addition, the trade organization stated that it is advocating for state laws and regulations preventing the enforcement of what it has termed NTRAPS.<\/p>\n\n\n\n The National Association of Realtors<\/strong> also expressed concerns about MV Realty and their right to list agreement.<\/p>\n\n\n\n \u201cConsumers should be sure they are aware of all aspects of any listing agreement and should consider consulting with a professional advisor regarding the obligations and any potential risks,\u201d the trade organization wrote in an email. <\/p>\n\n\n\n Besides Attorneys General and industry trade groups, MV Realty has also caught the attention of three Democratic U.S. senators, Sherrod Brown of Ohio, Minnesota\u2019s Tina Smith and Ron Wyden of Oregon. <\/p>\n\n\n\n …Recording these agreements in property records can create a long-term barrier to the transfer or financing of real estate or hamper estate administration. Non-Title Recorded Agreements for Personal Services (NTRAPS) and the recording of such agreements undermine a homeowner\u2019s property rights.<\/p>\nDiane Tomb, CEO of American Land Title Association<\/cite><\/blockquote>\n\n\n\n In a letter sent<\/a> in late December to the Federal Trade Commission <\/strong>and the Consumer Financial Protection Bureau,<\/strong> the three senators wrote: \u201cMV Realty, and companies like it, take tens of thousands of dollars from homeowners in exchange for a minimal upfront payment. By advertising these agreements as a \u2018loan alternative,\u2019 companies are attempting to avoid the legal limitations on lending while in essence charging borrowers onerous rates. Sadly, exclusive listing companies are now a national problem, affecting consumers across state lines.\u201d<\/p>\n\n\n\n The senators are asking the FTC and CFPB to determine if MV Realty was breaking any federal laws.<\/p>\n\n\n\n In response to the criticisms and the lawsuits MV Realty currently faces, a spokesperson for the firm wrote in an email: \u201cNew 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.\u201d <\/p>\n\n\n\n MV Realty said it was \u201ccommitted\u201d to working with policymakers and regulators, telling HousingWire it is confident that \u201cafter a full airing of the facts,\u201d the discussions will \u201creinforce how MV Realty\u2019s business transactions are legal and ethical and that our team operates in full compliance with state laws.\u201d<\/p>\n\n\n\n Trepeta added: \u201cI am not really sure if there is anything illegal about the HBA. It is certainly not a common business practice, but unless people are being actively misled, they don\u2019t appear to be doing anything that is strongly against the law. But when you look at it just kind of feels like a bad deal.\u201d<\/p>\n\n\n\n In addition to facing complaints and allegations of deceptive business practices, the firm is also facing allegations that it disproportionately targets low income and minority households. <\/p>\n\n\n\n According to data from the Reinvestment Fund<\/strong>, first reported on by Forbes<\/strong><\/a>,<\/strong> 69% of the MV Realty HBAs signed in Philadelphia are from Black homeowners, who make up just 37% of all homeowners in the city.<\/p>\n\n\n\n \u201cMV only contacts people who have \u201copted-in\u201d seeking information. This opt-in is typically obtained through digital marketing campaigns,\u201d MV Realty wrote in response to this claim on its \u201cFact versus Fiction\u201d document. \u201cMV does not have any data on ethnicity and typically only learns someone\u2019s age at the time they indicate they would like to complete a transaction. MV does not consider an individual\u2019s race, ethnicity, or age in any way when determining whether to enter into an HBA with a homeowner.\u201d<\/p>\n\n\n\n I am not really sure if there is anything illegal about the HBA. It is certainly not a common business practice, but unless people are being actively misled, they don\u2019t appear to be doing anything that is strongly against the law. But when you look at it just kind of feels like a bad deal.<\/p>\nKen Trepeta, executive director of the Real Estate Services Providers Council<\/cite><\/blockquote>\n\n\n\n While MV Realty is currently the only firm currently facing legal trouble, it is certainly not the only firm utilizing right-to-list agreements.<\/p>\n\n\n\n SellWhenever<\/strong> and HomeOptions<\/strong> are two other firms generating home listing business through cash payments to homeowners and right to list agreements.<\/p>\n\n\n\n Like MV Realty, both firms hold brokerage licenses, but unlike MV Realty, they do not have their own in-house agents who list and sell the properties of those enrolled in their programs. Instead, they partner with agents, teams and boutique brokerages in the areas they operate.<\/p>\n\n\n\n Under the SellWhenever model, when homeowners who signed up for its \u201cLoyalty Benefit Program<\/a>\u201d decide it is time to sell their home, they can choose an agent from SellWhenever\u2019s network to partner with.<\/p>\n\n\n\n \u201cSellWhenever maintains partnerships with brokers in multiple states and our collaborations are centered on one mutual goal \u2013 improving the homeownership experience for our homeowners and our clients. Our brokerage partners connect with SellWhenever to offer our Loyalty Benefit Program to homeowners who have already had a successful experience with those brokerage partners,\u201d a spokesperson for the firm wrote in an email.<\/p>\n\n\n\nMV Realty under fire<\/h2>\n\n\n\n
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Right to list choices<\/h2>\n\n\n\n