Suit Says Real Estate Firms
Took Illegal Kickbacks

The Justice Department filed a suit against two big real-estate brokerage firms, accusing them of receiving illegal kickbacks for steering home sellers to a provider of hazard reports.

The suit, also accusing the information supplier, was filed in federal court for the central district of California and seeks to recover "illegitimate profits" generated by "sham" joint ventures formerly operated by Realogy Corp., the owner of the Coldwell Banker and Century 21 chains; Prudential California Realty, a franchisee of Prudential Real Estate Affiliates, a unit of Prudential Financial Inc., Newark, N.J.; and Property I.D. Corp., Los Angeles, which provides home sellers with information for their disclosures about such hazards as earthquake and flood risks.

The three companies denied wrongdoing. The brokers said they worked with Property I.D. in a legitimate manner.

The suit is based on an investigation launched in 2005 by the Department of Housing and Urban Development.

The department alleges that the brokers and Property I.D. set up joint ventures designed to funnel payments of $25 per report -- a quarter of the fee paid by home sellers -- to the brokers in exchange for their referrals of business.

HUD argues that this arrangement violated a provision of the Real Estate Settlement Procedures Act, known as Respa, that bans kickbacks for the referral of services related to the settlement of home sales.

A HUD spokesman didn't specify how much money the government expects to recover but said the joint ventures generated several million dollars of profits for the companies involved.

Earlier this week, Property I.D. filed a suit against HUD in the same federal court, seeking to end the HUD investigation.

The company argues that hazard reports aren't settlement services and thus aren't covered by Respa.

Property I.D. also says consumers paid the same price for reports whether they were referred by a broker or approached Property I.D. on their own.

Realogy, recently acquired by Apollo Management LP, New York, said it believed it acted lawfully in the joint ventures and also said the hazard reports aren't covered by Respa.

Prudential California, which operates in Northern California and is owned by David Cobo and Ed Krafchow, also denied wrongdoing.

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