A group of real estate brokers filed a qui tam lawsuit accusing two lenders who specialize in loans for military families of taking referral fees and paid rebates or bonuses in connection with homes secured by federally guaranteed mortgage programs – and failing to disclose that information. 

North Carolina brokers William Sanders, of Coldwell Banker Fountain Realty, in Jacksonville, N.C.; Kathy Donham, formerly of Coldwell Banker, and Mark Prince, of Keller Williams filed the False Claims Act (FCA) case against Navy Federal, a not-for-profit credit union serving the military, veterans and their families. Navy Federal partners with Cartus, a relocation services company owned by Realogy, to offer RealtyPlus, a real estate assistance program for its members. The program is publicly advertised by Navy Federal and Cartus. 

If Navy Federal members use the RealtyPlus program to find a real estate agent in the Cartus Broker Network, which includes real estate brokerages owned by Realogy, including Coldwell Banker and Century 21, they may be eligible to receive a cash rebate.

The case is United States of America, ex rel. William Sanders, et al., v. USAA Federal Savings Bank, et al. (U.S. District Court, W.D. Virginia, Harrisburg Division, No. 19-cv-00004). 

The facts 

The brokers claimed Navy Federal violated RESPA by receiving referral fees and paying rebates to its members, and that because of the alleged violations, the credit union’s certifications to the Department of Housing and Urban Development (HUD), on Federal Housing Administration (FHA) loan applications, and to the Department of Veterans Affairs (VA) on VA loan applications, were false. 

They also alleged Navy Federal’s annual certifications of compliance with the HUD and VA loan guarantee programs were false due to the supposed RESPA violations. In addition, as a result of foreclosures on federally guaranteed loans, the lenders illegally made claims on the government to recover on the loan insurance. 

Also named in the suit is USAA Federal Savings Bank, whose subsidiary, USAA Relocations Services, Inc. (RRES), was a licensed real estate broker. RRES conducted a program called the Real Estate Rewards Network (RERN) program, formerly known as the MoversAdvantage program, to offer a referral network for relocating members in need of a real estate broker. 

The RERN program operated through a co-brokerage relationship with Cartus. The RERN program introduced members to a real estate broker with whom Cartus had a co-brokerage agreement. If a member bought or sold a home through the RERN program, that member became eligible to receive a rebate or reward. This is because the real estate broker agreed to provide a portion of his or her commission to Cartus pursuant to their co-brokerage agreement. Cartus then distributed a part of that commission to RRES pursuant to its co-brokerage relationship with RRES, and the member then received a predetermined portion of that commission in the form of a rebate or reward. 

The RERN program ended in 2019. It was a USAA-branded affinity program that USAA offered to members in the market to buy or sell a home. The brokers alleged the RERN program violated the FCA because RESPA and TILA prohibit the sharing of real estate commissions and paying rebates or rewards. 

The brokers claimed USAA’s loan applications to HUD and the VA contained false information. Thus, USAA is alleged to have falsely certified to the government it fully complied with federal loan program rules, which caused the VA or FHA to issue unauthorized federally backed mortgage guaranties. 

The ruling 

Judge Elizabeth Dillon recently dismissed the case with prejudice.

The purpose of the FCA is to prevent fraud that might otherwise evade detection by the federal government. However, a qui tam suit does not help the government if the fraud has already been uncovered, Dillon noted in her opinion.

The FCA’s public disclosure provision states, “the court shall dismiss an action or claim if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed in a federal criminal, civil, or administrative hearing in which the government or its agent is a party;  in a congressional, Government Accountability Office, or other federal report, hearing, audit, or investigation; or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 

Several newspaper articles describing the Navy Federal and USAA affinity rebate programs submitted to the court are qualifying public disclosures, the judge stated. 

“Second, information contained in these articles form the basis of (the brokers’) suit,” Dillon added. “For example, a Baltimore Sun article from 1998 reports that Navy Federal sponsored an affinity program, and that some affinity programs entail commission rebates from brokers who have agreed to discount fees in exchange for referrals. The second amended complaint (SAC) includes identical allegations.”

The brokers argued the allegations in the SAC are not substantially the same as the information contained in the newspaper articles because the articles do not state a fraudulent act. However, the judge disagreed, finding the claims to be barred because they are based on allegations that had already been publicly disclosed. 

“(The brokers) claim to have uncovered the true nature of the ‘scheme,’ purportedly providing the ‘exclusive knowledge that the bonus or rebate is tied to the referral of business for each transaction,’ “ Dillon stated.  “ ‘The bonus [comes] ... from participating real estate brokers who’ve agreed to discount their regular fees in exchange for USAA’s referral of prime, prequalified clients ready to buy or sell.’ Substantially the same allegations have been publicly disclosed, and it matters not that the conduct was not specifically labeled as fraudulent.” 

The judge also found the unspecified TRID allegations insufficient to meet the pleading requirements for materiality, noting the government declined to intervene in the case after being served with the complaint. 

“Here, RESPA violations are omitted from the enumerated situations where a mortgagee must indemnify an FHA payment for regulatory violations,” Dillon stated.   

The brokers asked the court to recognize a settlement between USAA and the federal government, and to award an appropriate share in the recovery. 

“Here, relators again refer to USAA’s fine pursuant to an OCC (Office of the Comptroller of the Currency) consent order in October 2020,” Dillon wrote. “Relators state that if any of the underlying claims found in the case before this court match any of the claims found in the settlement agreement of the OCC consent order, it constitutes an alternate remedy to a civil qui tam action, entitling relators to intervene in the civil action to protect their rights and recover a share of the proceeds. 

“Given the court’s analysis of relators’ claims and its determination that the claims should be dismissed with prejudice, the court will deny relators’ motion."