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Raleigh Realty and CrossCountry Mortgage are accused in six separate lawsuits of operating an illegal “pay-to-play” scheme in violation of the Real Estate Settlement Procedures Act (RESPA).
A North Carolina real estate brokerage is accused of requiring its agents to send their clients to a mortgage lender that was picking up half of its monthly digital marketing expenses — an illegal kickback, former clients allege in court.
Raleigh Realty and CrossCountry Mortgage are accused in six separate lawsuits of operating an illegal “pay-to-play” scheme in violation of the Real Estate Settlement Procedures Act (RESPA). The homebuyers who filed suit say they paid higher interest rates and discount points on their loans than if they’d shopped around.
A co-marketing agreement between Raleigh Realty and CrossCountry Mortgage also circumvented the lender’s internal company policy, and was “simply window-dressing created for plausible deniability,” the lawsuits claim.
Both Raleigh Realty and CrossCountry Mortgage told Inman they would not comment on pending litigation. However, the companies denied similar allegations in a 2022 class-action suit, winning some of their arguments before that case settled in June.
The new lawsuits — brought on behalf of homebuyers by one of the law firms involved in the 2022 case, Maginnis Howard — build on details uncovered during the discovery process in the previous case.
The allegations center around a 2021 co-marketing agreement in which Raleigh Realty was ostensibly to provide web marketing services for CrossCountry Mortgage and be reimbursed $15,000 a month. But the lawsuits claim Raleigh Realty was actually expected to send homebuyers exclusively to CrossCountry Mortgage.
In a group chat cited in RESPA lawsuits, Raleigh Realty owner Ryan Fitzgerald allegedly complained that agents at his firm weren’t sending all of their business to Corey Walker, a CrossCountry branch manager in Raleigh.
“I cannot stress this enough that if I see you recommending your friend lenders instead of Corey, I cannot keep sending you leads because at that point you’re taking money out of the entire company’s pocket,” Fitzgerald allegedly wrote.
According to the lawsuits, Fitzgerald had started discussions with Walker and his supervisor, CrossCountry executive Chuck Shackelford, about the terms and expectations for an agreement between the companies in February 2021.
“Shackelford, as he did in other circumstances, expedited or circumvented the process by which co-marketing vendors were generally approved by CrossCountry’s marketing department,” the lawsuits allege. “For this particular deal, Mr. Shackelford took this proposal straight to top CrossCountry executives. CrossCountry marketing managers who customarily review co-marketing agreements warned the company’ executives that the expedited procedure circumvented company policy and violated RESPA.”
Under the terms of the April 12, 2021, co-marketing agreement, CrossCountry Mortgage and Raleigh Realty were to split a $30,000 monthly bill for services that Page One Power LLC — a digital marketing company specializing in search engine optimization — provided to the real estate brokerage.
But instead of reimbursing Raleigh Realty, CrossCountry Mortgage was invoiced by Page One Power and paid it $15,000 a month directly, the lawsuits allege.
“In return for CrossCountry’s $15,000 contribution, Raleigh Realty was ostensibly to provide various ‘web marketing services,’” the lawsuits claim. “However, the reality is that the remuneration was agreed upon in advance and the ‘marketing services’ were simply window-dressing created for plausible deniability.”
But by May 2022, Shackelford “noticed a downturn in Raleigh Realty’s referrals and complained to Mr. Fitzgerald that Raleigh Realty had been failing to meet a minimum expectation of 15 deals a month and threatening to cut the amount of the monthly $15,000 payment by roughly half,” the lawsuits alleged.
CrossCountry “ultimately terminated its agreement with Raleigh Realty after concluding that the number of referrals was insufficient for the $15,000 monthly kickback.”
One couple that has sued the brokerage and its partner lender said they were required to pay a $995 loan origination fee and a $3,765 “discount point fee” on their CrossCountry mortgage. Despite paying the discount point, they still ended up with a rate that was 0.75 percentage points higher than what they could have qualified for with another lender, they alleged.
The higher rate added $190 to their monthly mortgage payment, or $68,500 over the life of their loan, attorneys for the homebuyers claimed.
“Given the high level of trust that plaintiffs and other consumers place in real estate agents when buying a home, Raleigh Realty compelled plaintiffs to use CrossCountry despite the disadvantageous interest rate over the life of the loan and the increased settlement costs,” the lawsuit June 25 lawsuit claimed.
CrossCountry Mortgage and Raleigh Realty, which according to state records employs 31 agents and brokers, have not filed answers to that complaint and five others, including four that were filed on June 25.
The most recent suit was filed on July 30 on behalf of a homebuyer who claims they will pay $1,800 in extra interest over five years on an adjustable-rate mortgage (ARM) with an unfavorable rate.
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