Battle festers over regulating real estate Web site
Ostensibly, it was a legislative subcommittee work session on an obscure amendment having to do with a class-action suit concerning auto dealer financing and insurance. But the room was crowded with lobbyists and representatives of the New Hampshire Association of Realtors, the New Hampshire Bankers Association, the state Insurance Department, the Bureau of Securities Regulation and the attorney general’s office.
At stake is where the authority of the state bank commissioner ends when it comes to regulating a company that lends money.
“Do I have exclusive jurisdiction on the whole table, or on everything but what’s on one little corner of it?” asked Banking Commissioner Peter Hildreth.
Hildreth was referring to a simmering controversy surrounding ISoldMyHouse.com that emerged after he attempted to assert exclusive jurisdiction over deciding whether the division of 1-800 East-West Mortgage Company was acting as a real estate broker.
Hildreth had even directed that East/West Mortgage shouldn’t hand over information requested by the New Hampshire Real Estate Commission, which is investigating the matter, because such information should be confidential under Banking Department rules.
The attorney general later ruled that indeed the ISoldMyHouse.com matter did come under the domain of the Real Estate Commission — a ruling that was validated in Merrimack Superior County Court last month.
The very suspicion that, in response, the Banking Department would try to overturn that court ruling attracted the officials and lobbyists to the mid-May work session. Each dug in to protect his or her turf.
It is more than a jurisdictional battle. The original complaint filed by the New Hampshire Association of Realtors against ISoldMyHouse.com echoes a larger national battle being fought over similar Web sites that help people sell their own homes, cutting out real estate agents from the process.
Should banks be able to enter that business as part of the free-flowing financial service agency future? And if so, who should regulate this: the Real Estate Commission – which has traditionally upheld the status quo – or the Banking Commission, which has let the market reign?
ISoldMyHouse.com has become a local real estate powerhouse. In New Hampshire alone, it has 14,000 listings, charging as little as $95 a week to list a home, though with extra services the price can reach more than $500. That’s still far less than a 6 percent commission — or $12,000 — on a $200,000 sale.
National statistics show that a growing number of Americans – up to 14 percent – are selling their home without the help of a Realtor.
And the fact that the company doesn’t have sales figures – it can’t say how many homes have been sold through ISoldMyHouse.com — proves its point. It is not a real estate broker, said Brian Thompson, CEO of Commerce Bank, the Worcester, Mass.-based owner of East-West Mortgage. The fee is charged for the listing and is not tied to the sales price or even to a sale at all.
“We don’t track the sale. We have no investment in the sale. We play no role in the sale. We are just a medium that merely gives people a name and a phone number,” Thompson said.
Hildreth agreed with that argument, comparing the Web site to a classified ad — a simple way for East-West to attract people to its mortgage business, which is clearly regulated by the Banking Department.
Nevertheless, Realtors throughout the nation have challenged such Web sites, and real estate regulators have often upheld such challenges. The U.S. Justice Department has even stepped into the fray, challenging Realtors’ attempts to restrict exclusive listings.
While the Justice Department suit doesn’t really deal with regulatory jurisdiction, it does go to the broader issue, said Chris Gallagher, an attorney and lobbyist who represents ISoldMyHouse.com. “Realtors are on the wrong side of evolution toward information technology,” said Gallagher. “Realtors, like travel agents, were privy to information that separated them from the average consumer. Today, information is available to anyone.”
But unlike travel agents, Realtors have had the political pull to put off the inevitable, he said. They are “burning a cross on congressional lawns to keep banks out of the real estate business” on a national level, though many states allow banks to do so.
(In New Hampshire, no bank is in the real estate business, but that doesn’t mean they can’t be, said Hildreth. “No one has asked me the question yet,” he said.)
Realtors claim that they don’t have any problems with homeowners putting their properties on the Internet. The problem is that ISoldMyHouse.com is more than simply a place to advertise, said John M. Sullivan, the New Hampshire Association of Realtors’ attorney.
“They screen who the property owners are. They screen where the property is located. They force you through a funnel and put a heavy press on you to use their mortgage company. They decide which kind of offer they present and not present and they call up buyers and give them advice that borders on legal advice,” Sullivan said.
ISoldMyHouse.com disputes many of these claims. Even if they are true, Gallagher said, what makes a broker an agent is that he or she represents a buyer and a seller for a percentage of the sale. Realtors who are trying to expand the definition of a broker beyond that are simply trying to protect their turf, he argued.
But Sullivan countered that it’s the Real Estate Commission that should be defining what a real estate broker is, not the bank commissioner.
“It doesn’t make sense. If a bank was giving out free mammograms to bring in customers, it doesn’t mean that the Bank Commission will be regulating them. That’s not what a bank is supposed to be doing as its business,” Sullivan said.
“It is the attorney general, not Hildreth, that has primary responsibility for deciding the laws in this state,” he added. “And in this case, it wasn’t even close.”
But Hildreth and Gallagher disagree with the attorney general’s decision, as well as the court’s, because the AG, rather than representing the Banking Department, sided with the Real Estate Commission.
“The court was just stipulating an agreement worked out by two parties,” Gallagher said. Whatever the agreement, he said, the law gives the Banking Commissioner “exclusive” jurisdiction and “exclusive means just that, exclusive.”
So when Gallagher, now lobbying for the New Hampshire Bankers Association, sought an amendment that clarified the bank commissioner’s “exclusive remedial authority and jurisdiction,” he attracted quite a crowd.
On its face, the amendment had nothing to do with real estate activities at all. It was, according to Gallagher, merely a legislative attempt to make things easier for a class-action lawsuit by Concord Attorney Chuck Douglas over a disability or loss-of-income insurance policy that auto dealers sometimes peddle with their financing packages.
The insurers were supposed to refund the premium if the loan was paid off early, but that didn’t always happen. In addition, the auto dealer’s financial arm was supposed to inform the customer that such a refund would be due to them. That didn’t happen either.
So Douglas sued both the insurer and the financial unit, though he was primarily concerned about insurance companies, since they would be the ones who would pay up in any settlement.
The banks, according to Hildreth, were unsure about whether they could give up the information sought by Douglas because of federal, state and banking laws. And Hildreth said the amendment simply clarified his authority to do so.
“I don’t believe it expands my jurisdiction,” Hildreth said.
But others obviously disagreed, viewing it as an attempt by Hildreth and Gallagher to attempt legislatively to overturn the court’s decision in ISoldMyHouse.com.
“This is a significant departure from the status quo,” said Ann Larney, who — as head of the civil bureau in the attorney general’s office, which represents all the administrative departments – was acting as a referee. “The amendment is trying to codify the Banking Commission’s ruling [in ISoldMyHouse.com].”
Despite Gallagher’s insistence that the amendment was “not intended to extend anything,” Larney said that the commissioner’s previous order “belies that.” Even Gallagher’s attempt to carve out the ISoldMyHouse.com case from the amendment didn’t satisfy real estate brokers, who were “concerned about the next issue that comes up,” said lobbyist James Bianco, who represents the Realtors association.
Indeed, others questioned whether the bank commissioner’s “exclusive authority” was already too broad.
The Banking Department recently received such authority through an amendment to the Consumer Protection Act.
Previous complaints against the financial service industry – which has mushroomed far beyond banks to car dealership financers, payday lenders and mortgage service companies — could be investigated by the attorney general’s office. Now such complaints are channeled to the appropriate regulatory agency, like the Banking Department, which beefed up its staff to handle such complaints.
The change, said Gallagher, made the process friendlier to consumers, “who need a place to go one-stop shopping, who can’t afford to go to two agencies.”
Consumer advocates, however, contended that such regulatory agencies tended to be cozier with the industry than the attorney general’s office, and denied consumers use of the Consumer Protection Act – with the incentive of its triple damages – to obtain an attorney to litigate the matter on their own.
Now, however — thanks to Hildreth’s abortive ISoldMyHouse.com ruling — other agencies are getting nervous that the Banking Department was taking its “exclusive authority” too far.
“It’s very broad,” said Mark Connolly, head of the state’s Bureau of Securities Regulation. Instead of regulating by function, the banking commissioner “can draw a moat” around the entities it regulates, “and we don’t have jurisdiction to investigate a securities complaint if anything has a nexus to a bank or a mortgage company.”
Gallagher — “dismayed” that some people were now questioning the banking commissioner’s exclusive authority — withdrew the amendment after House Commerce Committee Chair Sheila Francoeur said she was going to vote against it because of “unintended consequences,” and after Douglas testified that he really didn’t need it after all.
The next stage
The battle now shifts to the Real Estate Commission.
Gallagher has charged that the commission made a decision to request information without publicly meeting – preventing his client from making its case. And since three of the five commission members are Realtors, they should recuse themselves.
In an order issued May 17, the commission denied the recusal request, saying that since the individual commission members did not participate in the filing of the complaint, there is no conflict of interest.
As for denying ISoldMyHouse.com its day in court, it’s simply premature, Real Estate Commission Chairman Beth Emmon said.
“This is still in the investigatory stage,” said Emmon. “We have not concluded that there is any evidence of a violation. If we find such evidence, then we will hold a hearing, and at that point the respondent can appear.”
It is doubtful, however, the commission will have the last word. Gallagher said the case raises right to know, antitrust and freedom of speech issues.
“Sooner or later, these issues will come before the Supreme Court, be it the state or federal,” Gallagher said.