Fallout Boy: The Zillow RESPA Lawsuit

I’ve been writing a lot about Zillow recently for one simple reason: there’s a lot of news around them. The latest comes from the legal world, bringing the total to seven lawsuits that Zillow is involved in today—six of them big and important. (One is a discrimination employment lawsuit and I figure every large company has at least one of those going on.)

The latest is Armstrong v. Zillow, a class action lawsuit alleging RESPA and state consumer law violations as well as “Aiding and Abetting Breach of Fiduciary Duty.” Reuters reports on the story:

The proposed class action, filed on Friday, claims Zillow operates programs in which its affiliated real estate agents receive high-value sales leads only if they meet internal quotas for securing pre-approved mortgages from Zillow Home Loans.

Agents who failed to meet Zillow’s targets got fewer leads or were cut off, according to the lawsuit.

The plaintiff, an Alaska homebuyer, said she was led to believe she was required to use Zillow Home Loans and was not informed of alternative, potentially more affordable financing options. She sued on behalf of herself and as many as thousands of other consumers who allegedly paid more for mortgage credit and were denied access to competing loan options and better terms.

“Zillow is fundamentally cheating a carefully regulated system in order to win more of the mortgage financing market, and the result is that home buyers do not get objective, clear-eyed advice from their trusted real estate agents,” the lawsuit said.

My current expectation is that Zillow will settle this lawsuit, while admitting no wrongdoing. Well, they’ll try. Whether the plaintiff (that is, the law firm bringing this case) will agree to that remains to be seen.

However, there are a couple of rather interesting industry considerations that come out of Armstrong and I think it is worth thinking about those, especially in light of all the other things going on with and around Zillow.

As always, I am not your lawyer and this is not legal advice. It is edutainment and analysis. Please consult your own competent legal counsel for advice.