The questionable practices of a Florida-based company and its North Carolina subsidiary, who hold themselves out as real estate brokerage firms, have garnered significant attention over the past year due to the “Homeowner Benefit Agreement” program which various MV Realty entities have marketed to North Carolina homeowners since August 2020. In fact, in March 2023, the State of North Carolina (the “State”) sued MV Realty of North Carolina, LLC and related entities, asserting claims for unfair or deceptive trade practices, unlawful telephone solicitation practices, unfair debt collection practices, and usurious lending practices. Additionally, after receiving complaints from numerous consumers and after holding hearings on alleged violations of North Carolina real estate license laws and Commission rules, the North Carolina Real Estate Commission (the “NCREC”) recently ruled to permanently revoke MV Realty’s offering of its brokerage services in North Carolina.
Although certain aspects of MV Realty’s Homeowner Benefit Agreement program were modified over the years, the core terms remained the same – MV Realty represented to homeowners that it was offering an immediate cash payment between $300 to $5,000 (depending on the value of the homeowners’ property), in exchange for the homeowner signing an “Homeowner Benefit Agreement” (“HBA”), which purportedly required the homeowner to use MV Realty as their listing agent if they choose to sell their home during the 40-year term of the HBA. According to the NCREC, MV Realty markets the HBA program to consumers in need of funds through online marketing, robo-calls, and emails.
The Wake County Superior Court noted that, under the HBA, if a participating homeowner sells their home during the HBA’s term and uses MV Realty as a listing agent and no other broker, MV Realty’s commission is the greater of 6% of the sale price or of the estimated fair market value of the home at the time the HBA is signed and, if another broker participates in the sale, MV Realty’s commission is the greater of 3% of the sale price or 3% of the home’s estimated value at the time the HBA was signed. The court also noted that, if the homeowner breaches the HBA by, for example, using a different listing agent, the HBA provides that MV Realty is entitled to receive an Early Termination Fee (“ETF”) in the amount of 3% of the fair market value of the home either at the time the HBA was executed or at the time the HBA is breached—whichever is greater. The State asserted that the amount of the ETF is at least ten times more than the incentive payment that MV Realty initially paid the homeowner, and often much higher.
The typical HBA purports to give MV Realty a lien on the homeowner’s property and bind successors in interest. According to the NCREC, after the homeowner signs the HBA, MV Realty records memoranda of agreement and/or liens with the county register of deeds to block homeowners from transferring their property without first paying MV Realty. Since 2020, MV Realty has recorded at least 2,100 memoranda on homeowners’ properties across North Carolina. On numerous occasions, MV Realty has sought to enforce HBAs by filing lawsuits against homeowners for breach of contract and, when MV Realty has brought such lawsuits, it has generally filed a notice of lis pendens against the homeowner’s property (which is essentially a notice of the existence of a pending claim affecting the title to or asserting an interest in real property).
The State’s lawsuit alleges that, among other things, MV Realty unfairly and deceptively marketed the HBA program by failing to disclose and by misrepresenting the onerous and material terms of the HBAs, and by using signing procedures that deprive consumers of a meaningful opportunity to review the terms before signing them. It also alleges, based on numerous consumer complaints received by the North Carolina Department of Justice, that MV Realty routinely fails to provide even basic real estate services to homeowners in HBAs who try to use MV Realty to sell their homes. Among other relief, the Complaint seeks cancellation of the HBAs with North Carolina homeowners and terminations of the associated memoranda; restitution for North Carolina consumers; disgorgement of profits from defendants’ unfair or deceptive acts or practices; and civil penalties. The State also requested a preliminary injunction.
In the midst of this litigation, the North Carolina Unfair Real Estate Agreements Act (the “Act”) was signed into law. The Act “applies to unfair real estate service agreements that are executed, modified, extended, or amended” on or after August 24, 2023. The State asserts that this Act prohibits real estate service agreements, like MV Realty’s HBAs, that have a term of more than one year and run with the land or bind future owners, allow for assignment without consent, or create a lien, encumbrance, or other real property security interest. The stated purpose of the Act is “to prohibit the use of real estate service agreements that are unfair to an owner of residential real estate or to other persons who may become owners of that real estate in the future.” The Act prohibits the recording of such residential real estate service agreements so that the public records will not be clouded by them and provides remedies for owners who are inconvenienced or damaged by the recording of such agreements.
In ruling on the State’s preliminary injunction request, the Wake County Superior Court concluded that, even under North Carolina law predating the Act, the State demonstrated entitlement to preliminary injunctive relief. The court found that the State had shown a reasonable likelihood of success on the merits regarding its argument that the ETF was an unlawful, and thus unenforceable, penalty. The court also found that the State was likely to succeed on its unfair or deceptive trade practices claim as to those aspects of the HBA program which created a cloud on homeowners’ titles (namely the recordation of a memorandum of the HBA and the filing of a notice of lis pendens). Further, the court found that the State had shown a likelihood of success on its claim that the HBA program possessed a capacity to deceive, and had in fact deceived, homeowners because the HBA did not sufficiently put them on notice regarding a potential lien or the ramifications of recordation of the memorandum, which in any event was likely unlawful.
Despite MV Realty recently filing for bankruptcy, the State’s Attorney General and the NCREC are not backing down from the fight. They are continuing their efforts to hold MV Realty accountable for the wrongs alleged on behalf of North Carolina homeowners. Although litigation is still pending, this provides a cautionary tale for brokerage firms and others who may be considering questionable practices to increase their profits at the expense of consumers.
by: Rhian Mayhew