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Hazard Reports Now Covered By RESPA
By Brad Finkelstein
LOS ANGELES-Property I.D. here has settled a lawsuit filed against the company by the Department of Housing and Urban Development, with the result being that natural hazard disclosure statements are now to be treated as a real estate settlement service.
Therefore, for California transactions, the service provided by Property I.D. is definitively subject to the Real Estate Settlement and Procedures Act. California state law requires home sellers or their agents to disclose whether property is located within hazardous areas.
HUD filed the suit in May 2007, alleging Property I.D. and four real estate brokers violated RESPA by payments made to the brokers by Property I.D. through the creation of sham joint ventures. In the settlement agreement, Property I.D. said its participation in those ventures has been terminated.
The company said the settlement does not require Property I.D. or the real estate brokerages to make any payments to HUD nor does it require any admission of wrongdoing by it or the real estate brokerages.
However, a statement from HUD said a settlement in a related federal class action lawsuit brought by consumers requires the companies to pay up to a combined $35 million dollars as a "disgorgement of illegal profits." Property I.D. is responsible for $7.5 million of that settlement.
Property I.D. said it welcomes the portion of the agreement providing for HUD regulation because the NHD report industry had been unregulated, resulting in substandard reports. The settlement gives clear rules for the industry and consumers.
Its attorney, Andrew Gilford, noted the settlement "presents the opportunity for an entire industry to redefine itself, its role and its relationship with brokerages, agents and escrow officers." Mr. Gifford is a partner with the law firm of Weston, Benshoof, Rochefort, Rubalcava and MacCuish.
This includes the fact that now the consumer's payment for these reports will be collected as part of escrow.
He added, "Other NHD report providers will now have to try and live up to the higher standard set by Property I.D."
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