Borrowers and buyers suing Zillow for alleged RESPA violations and racketeering laid out new arguments in court filings last week, largely focused on pushing back against the portal’s contention that their lawsuit lacks legal merit while emphasizing their case hinges on agents’ obligations to represent clients’ best interests.
The case, composed of two consolidated class-action lawsuits filed late last year, makes two primary allegations: that Zillow unlawfully steers buyers toward its home loan programs, and that the practice directing buyer inquiries to agents who paid for leads is “deceptive” and violates consumer protection statutes. Zillow has denied these claims.
“Zillow has created a coordinated, vertically integrated system through which it leverages its dominance as the nation’s primary online real estate gatekeeper to control, condition, and monetize residential transactions at multiple stages, all to consumers’ detriment,” the plaintiffs filing says.
Zillow previously described the allegations and theories in the lawsuit as insubstantial, claiming that plaintiffs don’t detail how these practices result in higher commissions, and disputed that it sought to hide information from consumers.
The lawsuit is a high-stakes challenge to a common business model in the industry, as other portals (and real estate companies) engage in similar practices around so-called “lead diversions” and use of in-house mortgages. Plaintiffs are represented by Hagens Berman, one of the law firms that originated the original commission cases that resulted in a $1.78 billion verdict against the National Association of Realtors® (NAR) and two big brokerages.
It is also still in the early stages, with plaintiffs only having to demonstrate their allegations are plausible and follow valid legal theories in order to move forward. In the latest filing, they urged federal Judge James Robart of the Western District of Washington to affirm that Zillow’s programs and practices are illegal.
“Plaintiffs plausibly allege underlying breaches of (fiduciary) duties with detailed allegations, including that Zillow-Affiliated Agent…steered buyers; withheld or skewed information about financing alternatives and assistance programs; discouraged direct communication with listing agents; and permitted Zillow’s tools to interfere with confidential client communications,” the lawsuit reads.
Zillow won an early victory earlier this month when Robart agreed to pause expensive discovery in the case while he mulls whether or not to allow it to continue.
Plaintiffs noted in their most recent filing that Zillow, in its counter-arguments, made a distinction between fiduciary and “statutory” duty, which they argue is not a meaningful distinction in this context as both describe “honesty, fair dealing, disclosure of material facts, and the obligation to provide conflict-free, client-first advice.”
According to the plaintiffs, Zillow created quotas for “partner” agents to ensure buyers were referred to its mortgage arm, and flew executives to do in-person training and presentations to avoid leaving a paper trail. They also claim that Zillow failed to disclose the 40% of commission it takes from agents in its “Flex” program, alleging this represents a conflict of interest and drives up costs for consumers.
The lawsuit also alleges violations of the RICO Act, a federal law designed to curb racketeering and organized crime. The plaintiffs contend in the latest filing that Zillow “knowingly aided and abetted breaches of duties owed by buyers’ agents,” with full knowledge that it was incentivizing agents to work against their clients interest.
Zillow, again, has sharply disputed this characterization both on factual and legal grounds, and claimed it “has radically increased transparency for consumers and democratized access to the information needed to buy and sell homes.”
Separately, the portal is asking Robart to take “judicial notice”—meaning accept as undisputed fact—the existence of several of its disclosures, terms of use and forms, which it argues will be important in deciding whether to throw out the lawsuit. Plaintiffs are opposing that effort.
While currently focused on the narrow legal standard, the recent homebuyers (and borrowers) claim that the lawsuit is at its core about the duty of real estate professionals to clients, and disclosures of what they argue are incentives or pressure to put other interests first.
“(O)rdinary homebuyers, including Plaintiffs, reasonably relied on the advice of their buyer’s agents—who owed duties of loyalty, disclosure, and client advocacy in residential real estate transactions—and had no reason to suspect that the advice they received, the lenders to whom they were steered, or the transaction costs they incurred were influenced by undisclosed financial obligations and steering benchmarks imposed by Zillow,” the plaintiffs said.
