Zillow is facing a second proposed class-action lawsuit in as many months, as lawyers seeking to represent Zillow mortgage customers allege that referrals to Zillow Home Loans are a “coercive scheme,” violating RESPA and other state and federal laws.
Filed late last week in federal district court in Washington, the lawsuit adds another angle to the numerous legal challenges facing the company—two from rivals in the portal space, but now with two separate class-actions alleging the company has harmed millions of consumers.
According to this new lawsuit, Zillow exerts “enormous pressure” on real estate agents who use its popular Premier Agent or Flex programs to refer clients to Zillow Home Loans, using its control of leads to ensure agents steer clients to Zillow loans, preventing the use of outside lenders and resulting in borrowers paying more.
“Zillow’s public-facing platform presents Premier Agent and Flex participants as neutral, independent professionals. In reality, those agents operate under Zillow-imposed performance metrics that incentivize (Zillow Home Loan) referrals,” the lawsuit claims.
Zillow did not immediately respond to a request for comment. Plaintiffs in this latest suit are alleging violations of RESPA, which bans kickbacks and referral fees in services that involve mortgage loans, as well as “aiding and abetting breach of fiduciary duty” for agents.
This latest filing comes less than two months after another proposed class of Zillow customers sued over how the portal directs people to buyer agents.
That first lawsuit, known as Taylor v. Zillow, was filed by one of the same firms behind the original commission lawsuits that targeted the National Association of Realtors® (NAR) and big brokerages, while the lawsuit filed last week—dubbed Armstrong v. Zillow—was filed by another prominent class-action focused law firm, which most notably is litigating claims related to the 2024 cargo ship collision in Baltimore that destroyed the Francis Scott Key bridge.
Market power
Most of the recent lawsuits against the portal are unambiguously focused on its dominant position in the real estate landscape—particularly as it relates to consumers—and this latest suit is no different, claiming broadly that Zillow is “improperly wielding its monopoly power” and “fundamentally cheating a carefully regulated system.”
With a shift in the balance of power as consolidation appears to be forming new dynamics in the crowded—and often combative—real estate space, Zillow’s status as the preeminent consumer real estate brand appears to have painted a target on the company’s back for both rivals and regulators.
As far as how consumers specifically were harmed, the latest lawsuit generally asserts that Zillow Home Loans offers a “narrower” set of financing options, citing reviews from media publications and claims the lender does not “participate or inform borrowers” about federal tax credits, down payment assistance and closing cost assistance.
But it also focuses on Zillow’s power over agents—noting that the company closely monitors (and allegedly controls) real estate professionals who use its services.
“Zillow’s system ensures that agents’ financial interests are aligned with Zillow’s corporate goal of maximizing mortgage originations through (Zillow Home Loans), not with their clients’ best interests. Agents often depend on Zillow for leads and risk losing substantial income if they advise clients to shop for competing lenders,” the lawsuit claims.
That includes the use of quotas, leaderboards and scripts to keep the pressure on agents, and the exchange of leads for mortgage referrals constitutes a “thing of value” for RESPA’s purposes, the plaintiffs argue.
While Zillow’s agent partnership programs have been around for decades, it was only in recent years the company began integrating Zillow Home Loans into its flagship agent lead generation and advertising programs, as it paired agents with loan officers as part of a “deliberate strategy” to keep the entire real estate process within its own ecosystem, the lawsuit claims.
The lawsuit points to specifics in ZIllow’s “performance matrix” used to determine whether agents in its programs continue to receive leads. A document cited in the lawsuit providing guidelines for Zillow’s Preferred Agent Program (the “next chapter” of its Flex program) sets a minimum of 10% pre-approval rate for Zillow Home Loans among leads “that reached or passed ‘met with’ status in 90 days.”
Agents or teams who don’t meet this goal can be “disengaged” from the company, the document says.
Zillow also advertises its home loan program to agents, and gives consumers who submit an inquiry about a Zillow agent a pre-checked box saying they are interested in Zillow Home Loans, asking agents to refer them to the program based on that inquiry. The lawsuit claims this is all part of an “unscrupulous” anti-consumer system meant to profit Zillow, pointing to public statements by the company regarding its revenue and pipeline goals with Zillow Home Loans.
The lawsuit is seeking up to $25,000 in damages per class member—seemingly anyone who worked with a Zillow agent and then used Zillow Home Loans. The company recently cited increased use of Zillow Home Loans as a substantial driver in increasing its mortgage segment, with Zillow Home Loan origination volume up 56% year-over-year.
