A new class action lawsuit accuses Zillow of a massive kickback scheme in steering thousands of borrowers to its allegedly more expensive in-house financing business.
Araba Armstrong, an Alaska homebuyer who used Zillow’s services, is accusing the real estate giant of violating the Real Estate Settlement Procedures Act. Her complaint filed in a Washington federal court last week seeks to cover all Zillow Home Loans borrowers who were referred by a Zillow participating agent.
The complaint suggests Zillow’s Premier Agent and Flex programs incentivize real estate agents to steer consumers to Zillow Home Loans to obtain, and retain, higher quality leads. The company’s origination arm has grown in recent years and reached $1.28 billion, nearly all purchase volume, in the third quarter.
“Zillow’s system harms consumers, who are robbed of the disinterested advice of their fiduciary real estate agent, and instead are unknowingly steered towards ZHL’s limited and often uncompetitive mortgage products,” the lawsuit read.
The lawsuit doesn’t specify the amount of damages sought and suggests a class size of at least thousands of customers. Neither attorneys nor a spokesperson for Zillow returned requests for comment Tuesday.
It follows other major litigation targeting Zillow, including a class action suit accusing the company of misleading buyers into contacting Zillow buyer agents rather than a property’s seller agents. The Federal Trade Commission also sued Zillow in September over a rental advertising deal with Redfin, and Compass filed an antitrust lawsuit against its rival this summer over exclusive property listings.
How Zillow is accused of steering borrowers
The kickback accusations focus on Zillow’s programs, specifically Zillow Flex, in which participating agents must meet ZHL pre-approval quotas to maintain access to the high quality leads. Agents who don’t achieve stronger ZHL metrics face reduced volume or removal from the program, according to the lawsuit.
Flex agents must handle their leads in Zillow’s proprietary app, and the firm records data it uses to rank real estate teams on leaderboards for metrics including ZHL approval rate. In addition to greater ZHL volume, the parent company receives “success fees” in which Flex agents share up to 40% of their commission with Zillow for successful transactions.
The plaintiff, who purchased a home through Zillow last year, claims she believed she was obligated to use Zillow Home Loans for her mortgage. Armstrong argues the lender only offers a narrow range of conventional and Federal Housing Administration-backed loans, and she was steered away from programs which offer closing cost assistance.
The lawsuit also accuses Zillow of violating a Washington consumer protection law, in concealing the steering incentives within its agent programs. A summons for the company was also filed last week.
More borrowers are accusing lenders of violating RESPA
The Zillow complaint follows class action litigation against two other major competitors for their alleged kickback schemes during the market’s recent heyday.
Multiple borrowers sued Loandepot this summer for violating the Truth in Lending Act, in both depriving certain customers of lower rates and loan officers of their owed compensation. The megalender is accused of offering customers inflated rates, and greatly reducing compensation for LOs who had to lower those rates to close their loans.
CrossCountry Mortgage is also facing six RESPA class action complaints in North Carolina for a purported kickback scheme in concert with a Raleigh-based brokerage via a comarketing agreement.
Both of those lenders have denied wrongdoing, and the cases remain pending in federal courts.
