Departments of Banking, Consumer Protection Advise Debt Negotiators Against Gaining Proceeds from Real Estate Transactions
This news release was issued jointly by the Department of Banking
and the Department of Consumer Protection.
May 10, 2011
The Connecticut Department of Banking and the Department of Consumer Protection are working together to inform and remind debt negotiators and real estate agents to avoid certain illegal practices involving fees paid to debt negotiators.
“We’ve received complaints that some debt negotiators may be violating Connecticut law by entering into arrangements with consumers in which the negotiators are paid substantial fees for their loan modification services at real estate closings and, at times, from amounts previously earmarked as real estate broker commissions,” Department of Banking Commissioner Howard Pitkin said.
While nothing prohibits debt negotiators from being paid their fees at real estate closings, the Banking Commissioner by law establishes a schedule that limits the dollar amount that debt negotiators may receive from a consumer. The current maximum fee amount is $500, collectable only upon successful completion of the debt negotiation services contract.
“In addition to alleged overcharging, we are also concerned that some debt negotiators may be misrepresenting to consumers that their fees are being paid by the lender, when in fact, such fees are ultimately being paid by the consumer,” Consumer Protection Commissioner William M. Rubenstein said. “A third significant allegation is that these debt negotiators may be inappropriately receiving a portion of the real estate commissions. Our law is clear that real estate commissions may only be paid to licensed brokers or agents.”
By state Regulation Section 20-328-8a(e), real estate licensees in Connecticut may not share their commissions or compensation with anyone who is not a licensed broker or salesperson. Any debt negotiator who shares in real estate commissions in such manner may be deemed to be “engaging in the real estate business” without a license and could face criminal sanctions, the commissioners wrote.
The Commissioners sent out a joint letter and email message this week to all licensed debt negotiators, real estate salespersons and brokers in the state reminding them to abide by Connecticut law governing debt negotiator practices and provide their clients with a contract that includes a detailed list of services, costs and results as the law requires. The Departments of Banking and Consumer Protection will work together to ensure their licensees act accordingly and may proceed with enforcement action as needed.