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Zillow has agreed to pay $15 million to settle a class action suit by shareholders alleging that questions about the legality of a program that allows real estate agents and lenders to share marketing expenses caused the company’s stock price to tumble in 2017.
The settlement, which was granted preliminary approval on Monday pending an Aug. 8 settlement hearing, is expected to bring to an end a legal battle that’s dragged on for nearly six years.
The Consumer Financial Protection Bureau in 2018 concluded a separate investigation into whether Zillow’s agent-lender co-marketing program violated the Real Estate Settlement Procedures Act (RESPA) without taking action against the company.
Zillow has consistently maintained that its agent-lender co-marketing program — which launched in 2013, and is still active — is RESPA compliant, and admitted no wrongdoing in agreeing to settle the case.
The settlement also resolves claims that former Zillow CEO Spencer Rascoff and former Chief Financial Officer Kathleen Philips violated federal securities laws by making misrepresentations in various filings with the U.S. Securities and Exchange Commission or in other public statements to investors.
“We are pleased that the parties have reached a resolution of this matter,” a Zillow spokesperson said in a statement to Inman.
Zillow was sued by shareholders in 2017, who claimed that company’s failure to disclose the CFPB’s investigation until it had been underway for two years artificially inflated the price of Zillow shares, which allegedly dropped when potential RESPA issues came to light.
“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages,” the first of two complaints filed against Zillow alleged.
The two shareholder lawsuits against Zillow over the co-marketing program were consolidated into a single lawsuit in January 2018 and granted class action status in 2020.
Consumers who purchased shares in Zillow from November 17, 2014 through August 8, 2017, could receive a payment from the proposed class action settlement.
The judge presiding over the case, John Coughenour of the Seattle-based U.S. District Court for the Western Districs of Washington, is scheduled to hold a settlement hearing at 9 a.m. Aug. 8 to determine whether the settlement is fair, reasonable and adequate.
Coughenour will also consider the application of class counsel for an award of up to $6.5 million in attorneys’ fees and expenses.
After deducting attorneys’ fees and expenses, the average recovery for the 128 million shares purchased during that period is expected to be just under 23 cents per share. But the actual amount recovered per share will depend on the number of claims filed, the dates claimants purchased and sold Zillow securities, and the prices of those purchases and sales.
Zillow will identify affected shareholders so they can be notified of the settlement, but shareholders who are not sure if they’re included in the settlement can call the claims administrator at (866) 274-4004, or visit the website strategicclaims.net/Zillow and fill out a proof of claim and release form.
Both the CFPB’s investigation and the shareholder lawsuit against Zillow focused the real estate industry’s attention on RESPA compliance issues.
Just months before Zillow disclosed in May 2017 that the CFPB was investigating potential RESPA violations, the bureau fined two real estate brokerages and two mortgage lenders $4 million, alleging one of the lenders paid for mortgage business referrals in violation of federal law.
The CFPB is currently engaged in an “ongoing law enforcement investigation” of Rocket Homes, the real estate brokerage arm of Rocket Companies Inc., to determine if the company has conducted any activities that violated RESPA.
Rocket Homes is licensed as a real estate brokerage in all 50 states, which allows it to populate property search site Rockethomes.com with for-sale listings from multiple listing services, and collect fees from a network of more than 20,000 partner agents that it refers buyers and sellers to.
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