Class-Action Lawsuit Attacks Zillow’s ‘Co-Marketing’ Program

May 13, 2019

A judge says a class-action lawsuit against Zillow that alleges that its “co-marketing” program between agents and lenders violates federal antikickback laws can move forward. Zillow officials have called the lawsuit “without merit,” and company officials say they intend to “vigorously defend” against the accusations about its co-marketing program.

Zillow offers a “premier” agents and brokers program, where real estate professionals can receive prominent advertising placements on its listed home sites. In 2013, Zillow added to the program where agents could have large portions of their advertising fees paid for by lenders, who share the advertising costs with them for prominent ad placements. Prospective buyers on Zillow would then see an agent and lender advertised as they browsed for homes. The program allows lenders to share in the access to these buyer leads.

However, the recent lawsuit alleges the co-marketing program violates the Real Estate Settlement Procedures Act. RESPA is a federal law that prohibits the payment of fees for business referrals among real estate, mortgage, and title industry providers that are not for services actually rendered.

In April 2017, the Consumer Financial Protection Bureau announced it was investigating whether Zillow’s co-marketing program violated RESPA’s rules regarding kickbacks. However, the CFPB dropped its case when a new agency director was named.

But investors who purchased Zillow stock filed a class-action lawsuit alleging securities fraud. A district court judge dismissed portions of that lawsuit. But plaintiffs were told they could file an amended complaint if they could produce evidence that Zillow’s co-marketing program violated RESPA.

A federal district court judge ruled on April 19 that the lawsuit can proceed. “The court can draw a reasonable inference that Zillow designed the co-marketing program to allow agents to provide referrals to lenders in violation of RESPA,” Judge John C. Coughenour of the United States District Court for the Western District of Washington wrote in his decision.