Kassler & Co

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IN THE MATTER OF KASSLER & CO.

CONSENT ORDER, ETC., IN REGARD TO ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket C-26.11. Complaint, Feb. , 1975 - Decision, Feb. , 1975 Consent order requiring a Denver, Colo., mortg-clge banker, among other things to cease di tributing to real estate agents forms which restrict the buyer s source of home loan credit, which require the purchaser to sign at a later date a real estate contract fonn the terms of which are not set forth or attached to the earnest money agreement, and which require a purchaser's title insurance policy or preliminary report only be delivered to the respondent. Other provisions of the order will enable the buyer to be informed of the conditions of the real estate contract into which he is entering. 180 Complaint Appearances For the Commission: Dennis D. McFeely. For the respondent: Jones, Grey, Bayley & Olsen Seattle, Wash. COMPLAINT The Federal Trade Commission, having reason to believe that Kassler & Co., a corporation, hereinafter sometimes referred to as respondent, has violated the provisions of the Federal Trade Commission Act, and that a proceeding in respect thereof would be in the public interest, hereby issues this complaint stating its charges as follows: PARAGRAPH 1. Respondent Kassler & Co. is a corporation organized existing and doing business under and by virtue of the laws of the State of Colorado, with its office and principal place of business located at 600 Grant St., Denver, Colo. Respondent operates thirty branch and district offces located primarily in the western United States, including four offices in western Washington. Respondent servces trust deeds and mortgages totaling in excess of $82 00.

PAR. 2. Respondent. is and has been engaged in the business of brokering, granting, and servicing loans secured by mortgages and trust deeds on residential real estate, and performing escrow and closing services in connection with the purcha..,e of residential real estate.

PAR. 3. In the course and conduct of said business, respondent sends substantial quantities of documents, records, and messages between its branch offces and regional headquarters located in Washington State and its head offce in Denver, and also between the branch offces and regional headquarters located in Washington State and the offce of the head of residential home mortgage production in Encino, Calif. Respondent also regularly transfers funds between Washington State and its Colorado headquarters. A signifcant portion of the foregoing activities pertain specifcally to the generation and promotion of respondent' s business. Respondent is thereby maintaining and ha.c; maintained a substantial course of trade in commerce, as " commerce" is defined in the Federal Trade Commission Act. PAR. 4. For the purose of promoting its business, respondent has distributed to real estate agents throughout many pars of western Washington a contract form generally known in that area as an earnest money agreement" fonn. This fonn is utilied by real estate agents to create legally binding sale and purchase oblig'dtions between sellers and purchasers of residential real estate. The earnest money agreement form is wrtten so that it can be utilized both for mortgage . . .

182 Ff:m:RAL TRADE COMMISSION DECISIONS Complaint 85 F.

loan financing and for sales of property pursuant to a real estate contract.

PAR. 5. Said earest money agreement form contains, among others the following provisions:

1. If financing is required, the purhaser and seller hereby authorize Agent herein to select the lending institution and to arrnge the financing of this sale and to advance so much of the earnest money as may be necessar for loan costs. Purchaser agrs to make application immediately for such financing upon request of Agent, sign necessary papers and deposit, before closing, said advances and all closing costs attributable to purchaser. 2. If this agreement is for sale on real estate contract, seller and purchaser agree to execute a Real Estate Contract for the balance of the purchase price on Real Estate Contract Fonn No. A-l96 of Pioneer National Title Insurance Company, Seurity Title Insurance Company or Tmnsamerica Title Insurance Company. The terms of said fonns are herein incorporated hy reference and the terms of anyone of sad forms ar satisfactory to the parties hereto and said parties agree to execute anyone of sad contract forms selected by the closing agent. 3. Seller shall make available to purchaser, at office of KASSLER & CO. MORTGAGE BANKERS, or its agent, after acceptance of this offer, a stadard form purchaser s policy of title insurance or report preliminary thereto issued by a Title Insur.mce Company, and seller authoris Agent to apply at once for such title insurance. Delivery of such policy or title report to KASSLER & CO. MORTGAGE BANKERS, or its agent shall constitute delivery to purchaser. PAR. 6. The aforesaid provisions are unfai to purchasers of residential real estate in that:

1. The provision set forth above in Pardgraph Five, subpardgrph 1 (a) permits the real estate agent to select the lender, thereby preventing the home purchaser from shopping among competing financial institutions for the most favorable credit terms and servces (b) permits the real estate agent to advance the purchaser s money to a lending institution for preliminary loan costs without furher consent of the purchaser, thereby restricting the purhaser s freedom to seek financing elsewhere, (c) may lead purchasers to interpret recommendations and suggestions made by real estate agents concerning sources' of residential loans as being oblig-dtory upon the purchaser, (d) permits real estate agents to send business to lenders without regard to the best interests of the purchaser in order to receive gits, monies or other things of value from such lenders, (e) permits real estate agents to send business to lenders which will forego or diminish discounts chargeable to the seller while charging the buyer a higher interest rate, higher loan fees, or other charges, and (f) creates an iITeconcilable confct between the fiduciary duties owed by the real estate agent to the seller and duties owed to the purcha.,er.

2. The provision set forth above in Pargrph Five, subpargrph 2 requires the purchaser to sign at a later time a real estate contract form, the terms of which are not set forth in the body of the earest money agreement, nor included as an attachment thereto. Such ...

.no.o.""L:.I 180 Complant undisclosed terms of the real estate contract which is required to be signed include, among other provisions, the following: (a) forfeiture of the entire amount theretofore paid by the purchaser in the event of a default by the purchaser, (b) that the purchaser has made full inspection of the real estate and that the seller will not be held to any covenant as to condition, or agreement for alterations unless in writing, (c) assumption by the purchaser of all risks of damage to the property durng the term of the real estate contract. Although the foregoing terms, and other terms of the real estate contract, are of substantial significance to the purchaser, the purchaser, in the absence of the real estate contract form, is not normally aware of such terms at the time of signing the earnest money agreement.

3. The provision set forth above in Paragraph Five, subparagraph 3 requires only that a purchaser s title insurance policy or preliminary report be delivered to the respondent. The prevailng practice in transactions where respondent's said earest money agreeme!lt form has been utilzed is to deliver a copy of the preliminary report only to the respondent or other lending institution used by the buyer and to send a copy of the final title insurance policy to the purcha.,er only after the transaction has been closed and the monies disbursed. Accordingly, (a) there is no requirement that the purcha.-er be provided with a copy of any preliminary title report or insurance policy, (b) the purchaser is generally not apprised before the closing of the real estate transaction of the extent of title insurance coverage, including the existence of conditions and exceptions to such coverage, (c) the purchaser may be deprived of the opportunty for timely renegotiation of the purchase price to compensate for title defects not apparently curable, (d) the purchaser may be deprived of the timely exercise of his or her contractual right not to purchase because of incurble title defects, and (e) the purcha._er may be deprived of the opportunity to undertake to negotiate prior to closing for the removal of unwanted encumbrances which would not normally be removed through the closing process.

PAR. 7. Inasmuch as most purchasers of residential real estate do not have sufficient knowledge or capability to effectively bargain with the seller or his representatives to var the printed term and conditions set forth in respondent's earest money agreement form the provisions set out in Pargraph Five are almost invarably retained and included in the executed earest money agreements which utiize respondent' s forms. Additionally, subsequent to the execution of the fom earnest money agreement, purchasers of residential real estate which utilize respondent' s said form generally do not have the Deeision and Order 85 F.

knowledge and capability to effectively ameliorate, renegotiate or otherwse diminish the effect of the terms stated in Paragraph Five. PAR. 8. In the course and conduct of its business, and at all times mentioned herein, respondent has been and now is in substantial competition, in commerce, with corporations, firms and individuals engaged in the performance of services of the same general kind and nature as those provided by respondent.

PAR. 9. The aforesaid acts and practices of respondent, as herein alleged, were and are all to the prejudice and injury of the public and of respondent's competitors, and constitute unfair acts and practices in commerce and unfair methods of competition in commerce, in violation of Section 5 of the Federal Trade Commission Act. DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondent named in the caption hereof, and the respondent having been furshed thereafter with a copy of a draft of complaint which the Seattle Regional Offce proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondent with violation of the Federal Trade Commission Act; and The respondent and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondent of all the jurisdictional facts set forth in the aforesaid draft of complaint, a statement that the signing of said agreement is for settlement purposes only and does not constitute an admission by respondent that the law has been violated as alleged in such complaint and waivers and other provisions as required by the Commission rules; and The Commission having thereafter considered the matter and having determined that it had rea.,on to believe that the respondent has violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of sixty days, now in furher conformty with the procedure prescribed in Section 2.34(b) of its rules, the Commssion hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1. Proposed respondent Kassler & Co. is a corporation organized existing and doing business under and by virue of the laws of the State of Colorado, with its offce and principal place of business located at 600 Grant St., Denver, Colo.

2. The Federal Trade Commission has jurisdiction of the subject ...

H.. .. V 180 Decision and Order matter of this proceeding and of the respondent, and the proceeding is in the public interest.

ORDER It is ordered That respondent Kassler & Co., a corporation, its successors or assigns, its officers, agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the promoting and granting of residential loans in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: Disseminating or distributing, in any manner, directly or indirectly, any earnest money or other contract fonns used in connection with the purchase and sale of real estate (all hereinafter referred to as "earest money forms a. which provide that the seller or purchaser authorizes fhe real estate agent to select a lending institution, or to arrange financing of the sale, or to advance any of the purchaser s funds to any lending institution, or that otherwise have the effect of restricling where the purchaser may seek credit;

b. which provide that the seller or purchaser agree to execute a real estate contract or any other document without, at the option of respondent, either (1) settng forth the terms of such real estate contract or other document in the earnest money forms, or (2) setting forth the following language in the earest money forms: "THIS AGREEMENT IS VOID without furher action by any of the paries hereto unless a copy of the blank real estate contract form which the paries agree to execute is provided to the paries hereto prior to their signng this agreement.

I/WE ACKNOWUWGE nECEIPT OF BLANK REAL ESTATE CONTRACT FORM NO. PRIOR TO THE SIGNING OF THIS ISSUED BY AGREEMENT. Purchaser(s) Seller(s)" c. which provide for delivery of the title policy and report preliminary thereto to any pary other than the purchaser, or which provide for delivery at any specifed place; Provided That nothing herein shall preclude the inclusion of a provision permtting the sending of copies of the preliminary report and title policy to the lender or other closing agent, or other interested paries. 2. Failing to send, by certifed mail, retur receipt requested, a notice to all purcha.,ers of residential real estate (hereinafter referred to as "covered applicants ) who have, after the effective date hereof both (a) executed an agreement on the form printed and distributed by the respondent which contains the language quoted in Paragrph Five 89- 9 0 - 76 - 13 Decision and Order 85 F.

of the complaint, and (b) filed a loan application with the respondent. Such notice shall be sent within two business days of the receipt of the loan application by any representative of Kasler & Co. and shall advise the covered applicant that he may withdraw his loan application without costs, obligations or penalties by delivering or posting written notice to respondent of his determination to do so within ten calendar days of receipt of the required notice from respondent. The notices described herein, which shall include a blank form of loan withdrawal notice, shall be sent by the respondent in the language, form and manner, and with the enclosures, approved by the Seattle Hegional Offce of the Federal Trade Commission or other representative designated by the Commission.

3. Failing to allow all covered applicants to withdraw their application for credit without costs, oblig-ations or penalties if the respondent receives a loan application withdrawal notice as described above in subparagraph 2.

4. Failing to make contact in person with each real estate office to which respondent have distributed earest money agreement forms which contain the language stated in Paragrph Five of the complaint, and to use its best efforts to obtain possession of such earest money agreement fonns from the agent, and to destroy such forms.

It is further ordered That respondent maintain at all times in the future, for a period, in each case, of net less than one year, complete records relative to the manner and form of its continuing compliance with the above terms and provisions of this order. It is further ordered That respondent deliver a copy of this order to cease and desist to the heads of each operating division and separate offce within the company and to the heads of each region and branch office, and that respondent secure from each such person a signed statement acknowledging receipt of said order. It is further ordered That respondent notify the Commission at least thiry days prior to any proposed change in the respondent such as dissolution, assignment or sale resulting in the emergence of a successor corporation, the creation or dissolution of subsidiares or any other change in the corporation which may affect compliance obligations arising out of the order.

It is further ordered That respondent shall, within sixty days after service upon it of this order, file with the Commssion a written report setting forth in detail the manner and form of its compliance with this order.

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lR7 Order