The Department of Housing and Urban Development (HUD) announced August 8 that it has settled its federal lawsuit under the Real Estate Settlement Procedures Act (RESPA) against Property I.D. Corporation, a large hazard reporting company in California; Realogy Corporation; Cendant Corporation (now known as Avis Budget Group, Inc.); and Coldwell Banker Residential Brokerage Corporation.

HUD filed the lawsuit last year after the Department’s investigation found that Property I.D. formed a number of sham affiliations with real estate brokers. These joint ventures did not actually produce hazard disclosure reports and appeared to exist solely for the purpose of funneling payments in exchange for the brokers’ referrals of business, HUD claimed.

HUD alleged that Property I.D. Corporation violated RESPA’s prohibition of kickbacks by making improper payments to large real estate brokers in California based on the referral of consumers to Property I.D.

Under the settlement, the companies will be required to treat hazard disclosure reports as settlement services and not resume operations of any hazard report companies alleged by HUD to be shams. HUD hailed the judge’s “landmark ruling” that HUD has the authority to seek a permanent injunction and disgorgement of illegal profits from the companies under RESPA.

A settlement in a related federal class action lawsuit requires the companies to pay up to a combined $35 million dollars, much of it to California consumers who purchased hazard disclosure reports as far back as 1996. HUD determined that its request for an accounting and disgorgement of illegal profits in its lawsuit would be satisfied through the defendants’ payments to consumers in the settlement of this private action filed under RESPA. As part of the settlement with HUD, Property I.D. and the Realogy-related companies agreed that they would pay $7.5 million and up to $27 million, respectively.

“I am extremely pleased the court agreed that HUD has the authority to seek injunctive relief and disgorgement of profits illegally received through kickback schemes in violation of RESPA.” said Brian Montgomery, HUD’s Assistant Secretary for Housing and Federal Housing Commissioner. “This settlement should be a warning to anyone who sets up sham affiliated business arrangements designed to collect improper referral fees, that HUD is willing and able to seek these remedies in federal court.”