RESPA and RED FLAGS
2026 is likely a big year for lawsuits focused on RESPA the Real Estate Settlement Procedure Act. Some of the lawsuits, if certified for class action status, could result in big dollar claims even if settled. What’s the impact of these RESPA-related lawsuits on residential real estate practice with respect to federally related mortgage loans?
Now is the time for brokers to work with local counsel to update Office Policy so it complies with the RESPA rules, even though this 50-year-old law is considered a relic by many legal authorities, especially in today’s online world of digital shopping for products. While such cases face challenges — including whether they can be certified as class actions — attorneys have said publicly that their mere existence exerts pressure on real estate brokers/agents, mortgage lenders and title/escrow companies to remain cautious.
More importantly, brokerages should review their training programs to caution agents regarding what can be said and what should be avoided in advising buyers as to steps in the loan process – in short, what are the RED FLAGS.
During the billion-dollar Sitzer-Burnett and Moehrl antitrust lawsuits, the jury was profoundly influenced by the preponderance of negative evidence that discovery and depositions revealed from defendant’s training programs, office memos, email, and company policies (or lack thereof).
Before we list some of the RED FLAGS, let’s do a quick review of the current RESPA-related consumer litigation we’ve seen in recent months.
- There are several major lawsuits in the early stages that are filed by topflight legal veterans (ex, Hagens Berman) of the recent antitrust wins against the real estate industry. It seems the Esquires out there have targeted a fertile market in the mortgage loan industry. In late 2025, Armstrong and Taylor claims were filed against Zillow, and then homeowner class action claims were filed against Rocket Companies (Redfin and Mr. Cooper). Lately a new class action complaint was filed against Veterans United Home Loans.
- Plaintiffs in all three major cases (Zillow, Rocket, and Veterans United) allege that referral incentives and agent lead structures create informal pressure on agents to direct buyers toward affiliated lenders — steering and referral practices they characterize as prohibited under 12 U.S.C. § 2607 (RESPA).
- Brokers and agents have dealt with RESPA over the years, but not within the current antitrust climate that brokers face. There is a need to reimagine RESPA under office policy and transaction review, recognizing there is uncertainty in the language and mixed interpretations of this complex law.
- Many of these cases were discussed in our regular YouTube Update series at https://www.youtube.com/watch?v=8LaQUqmzy7k
- The Real Estate Legal Apocalypse: Zillow, Rocket Mortgage & the RESPA Red Flag Some of my Takeaways from that Red Flag session with Tristan and Saul were:
- We’ll see the big brokerages (think the $2B firms from the NAR Settlement) deciding to retain a RESPA loan specialist attorney to focus on the strategic plan for company policy and practice, including training for agents in avoiding unintended violations of this complicated federal Act (RED Flags) and the related Truth-In-Lending rules.
- We’ll need to follow the litigations, starting with the Armstrong/Taylor consolidation as it will be the first case to produce a judicial record of motions to dismiss, discovery, depositions, especially with respect to a critical decision whether to grant class action certification — To certify a damages class, plaintiffs typically seek Rule 23(a): numerosity, commonality, typicality, adequacy and Rule 23(b)(3): predominance (common issues outweigh individualized ones) and superiority (class action is the best method).
Examples of RED FLAGS
We’ll discuss examples of RED FLAGS in this article. In some cases, the broker/agent may barely cross the line and be subject to fines by CFPB. However, in today’s world of written buyer agency contracts with buyer clients, there could be separate legal action based on breach of fiduciary duty where the homebuyer argues they were steered and referred away from better competitive financing. And we’ve already learned how the DOJ feels about steering/referral practices that contribute to higher closing costs.
Here’s a sample – Assume the buyer client has worked with their trusted agent in the past and wants advice on how to get the best deal to finance a new home. The agent is very aware of certain lenders who are proven to be reliable, efficient, and responsive when last-minute issues arise. The agent tells their preferred lender: “instead of paying me a referral fee, give my buyer a special credit because I sent them to you.”
The result? The Consumer Financial Protection Bureau (CFPB) found a RESPA violation based on the agent’s relationship with the referred lender even though the buyer was the only one being paid via the lender credit. Are we starting to look at the professional real estate agent being penalized for offering too much help to the uniformed buyer/borrower? Or, is it safer to direct the client to the lender and licensed mortgage loan officer (MLO) to help with loan applications and negotiation of loan terms and conditions? That’s the new issue before us.
- As with any Risk Reduction policy, each brokerage/agent will manage the risk as best they see fit – some will look for workarounds, others will opt for a safer approach such as this sample policy:
Sample Office Policy:
- Encourage the buyer to obtain Loan Estimates (LE) from at least 3 lenders
- Provide a list of lenders, encourage rate shopping, and let the lender discuss products/terms.
- Disclose any relationships with lenders or affiliates
- Avoid receiving any “thing of value” from lender for the referral
- Avoid negotiating loan terms with lender on behalf of buyer
- Avoid requesting buyer credits on referring clients to lender
- Document buyer choice in writing (Buyer selected lender after reviewing LEs to compare costs and terms)
- Okay for agent to follow through and coordinate timelines and documentation
- Okay to request lender to provide buyer with their best borrower-facing pricing and any credits/fee reductions available under lender’s typical pricing and underwriting.
And now let’s take a look at some potential RED Flags that you may want to cover in training or Office Policy once you review strategy with local counsel — you may be quite surprised by the sales team responses :
RED FLAGS in STATEMENTS or POLICY
- If you credit my buyer, I’ll send you more business
- “I can get you a 5.5% rate if you use our lender.”
- Don’t recommend specific loan products
- Don’t promise lender loan approvals
- Don’t solicit financial information to qualify buyer
- Brokerage has no written policy on what agents can/can’t say about loans
- You must talk to our lender first
- Only send pre-approvals from our lender
- Don’t quote rate/terms
- Don’t fill out loan apps or lender forms
- Don’t position yourself as able to obtain specific loan terms. Don’t accidentally become an unlicensed “Mortgage Loan Originator’ MLO – An agent can be treated as a “loan originator” if they take an application or offer/arrange/assist/negotiate credit for compensation (direct or indirect).
CONCLUSION
We can expect to see some positive changes in RESPA compliance policy and practices that result from the current lawsuits and legislative efforts to update the RESPA provisions. This will take time. In the meantime, review your policies and decide on the best way to handle this Risk Reduction situation.
Please feel free to offer your comments and thoughts about the RED FLAGS in the loan stage of the residential real estate transaction. Does your current policy comply with RESPA?
4 Responses
Regarding the issue of Fiduciary Duty, here’s a classic quote from Rob Hahn:
“Real estate agents and brokers are failing to understand the transition from lead to client….In plain English: when the consumer agrees that you are their agent and you agree to represent them, you are a fiduciary. That’s the moment the duties attach. Loyalty. Disclosure. Care. Confidentiality. Obedience. The works.”
The transition from LEAD to CLIENT has CONSEQUENCES — perfect thought!
Excellent piece!!
John, that is exactly the hinge point.
The transition from lead to client is where the weather changes. Once the consumer agrees that you represent them, this stops being casual “help” and becomes fiduciary duty with actual teeth.
And let me say something that really ought not require a hazmat suit: some of the finest professionals I’ve worked with over the past twenty-six years have been in the mortgage industry. Not all of them, obviously. Let’s not get carried away.
But the good ones have been invaluable. Which is precisely why this matters. This is not an attack on lenders. It’s a warning about what happens when trusted professional relationships slide into habit, tunnel vision, or steering dressed up as service.
Once the client relationship exists, words matter differently. Recommendations matter differently. Office policy matters differently. That is where “helpful” can quickly become hazardous, especially if the buyer is being nudged away from informed choice and toward the path of least resistance for the professionals involved.
That, to me, is the real consequence.
This is a timely and necessary wake-up call for the industry. John Reilly’s breakdown of the “Red Flags” is spot-on, particularly in how he connects the dots between antiquated RESPA rules and the modern, aggressive litigation environment we saw with the Sitzer-Burnett and Moehrl cases.
The author is absolutely right to advocate for a complete “reimagining” of office policy. From a consumer advocacy perspective, this isn’t just about risk reduction for brokers; it is about protecting the homebuyer’s right to a competitive, transparent marketplace. For too long, “preferred lender” relationships have operated in a gray area where the line between “efficient coordination” and “steering” became dangerously blurred. By highlighting that even a lender credit given to a buyer in exchange for a referral can be flagged, the post hits on a critical truth: the consumer’s best interest is served by choice and competition, not by being funneled into an ecosystem that limits their options.
As for what might have been missed, there is a burgeoning “Red Flag” regarding **Data Privacy and Lead Scraping**. In today’s digital-first environment, many brokers use integrated CRM platforms that automatically share a consumer’s contact information and financial profile with an affiliated lender the moment a lead is captured—often before a meaningful conversation about choice has occurred.
While the post covers verbal steering, the **technological steering** baked into modern real estate “tech stacks” is a silent RESPA minefield. If the software is designed to prioritize an affiliate without clear, conspicuous consumer consent and an opt-out that doesn’t feel like a penalty, we are looking at the next frontier of class-action litigation. True consumer advocacy requires that we not only watch what we *say* to the buyer, but also what our *software* does with their data behind the scenes.