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December 15, 2022

Florida-based real-estate firm obtained mortgages on Pa. properties without homeowners' knowledge, AG says

Kerry Smith, attorney at Community Legal Services, tells City Council that MV Realty's practices are 'aggressive and abusive,' particularly for Black and brown communities

Real Estate Lawsuits
MV Realty Lawsuit Thom Carroll/For PhillyVoice

Pennsylvania Attorney General Josh Shapiro filed a lawsuit against real estate company MV Realty, alleging that the company misled consumers and obtained mortgages on their homes without their knowledge.

Florida-based real estate brokerage MV Realty allegedly misled homeowners and obtained mortgages on consumers' homes without their knowledge, a lawsuit filed Wednesday by Pennsylvania Attorney General Josh Shapiro claims.

MV Realty is accused of swindling customers with offers of $300 to $5,000 cash upfront in exchange for exclusive listing rights to their homes —  and then taking out liens on the properties to enforce the hidden terms of their contract. The brokerage markets the deal in 33 states, including Pennsylvania, through its Homeowner Benefit Program.

As laid out in Shapiro office's lawsuithomeowners were contractually obligated to provide MV Realty with the listing rights to their homes for 40 years. As part of its sales pitch, MV Realty assured customers that they did not owe anything to the firm unless they chose to sell their homes. 

But under the contract, MV Realty imposes a fee worth 3% of the home's market value on any transfer of the property over 40 years. This applies even if the homeowner asks to cancel the agreement before the term is up, or if the property is lost due to foreclosure. 

If a homeowner dies before the term is up, that person's heirs would inherit the contractual obligations and be forced to pay the fee to terminate the deal. These fees are owed even if MV Realty plays no role in the transfer of the property. 

The contract also give MV Realty the right to record mortgages on the properties in order to enforce its terms, Shapiro says. These mortgages have created obstacles for homeowners seeking to use their home equity for loans or to refinance their mortgages. It also put them at risk of losing equity in their homes, even if they never used MV Realty's listing services. 

The contract with MV Realty spells out the company's right to obtain these liens, but the attorney general's lawsuit claims the brokerage's agents do not explain this portion of the agreement or highlight it as a significant part of the contract before asking clients to sign. 

Homeowners also did not receive copies of the contract before signing, and Shapiro's office argues that consumers were not given ample time to review it before a notary was sent to their home by MV Realty. 

There are at least 1,000 mortgages across Pennsylvania tied to MV Realty, the Attorney General's Office said Wednesday. More than 500 homeowners in Philadelphia have signed agreements with the company, the Inquirer reported Wednesday. 

"Pennsylvania homeowners are falling victim to MV Realty's calculated deception in hiding the terms of the Homeowner Benefit Program," Shapiro said in Wednesday's press release. "MV Realty is a scam that exploits Pennsylvanians in vulnerable financial situations, and my office isn't buying it." 

Many Philadelphia homeowners who signed agreement had no idea MV Realty recorded mortgages on their propertys until they received written notices from the city's Department of Records, according to the lawsuit. 

When these homeowners contacted the company after receiving the documents, MV Realty reassured them that the liens were not actually mortgages, but rather "memorandums" that served as "public notice of the homeowner's obligations under the HBP agreement."

The brokerage has filed civil lawsuits against at least six Philadelphia homeowners for breaching their contracts with MV Realty. The lawsuits created a "cloud title" over the property, which the Attorney General's Office notes makes it "virtually impossible" to complete a sale without using MV Realty as the listing agent.

The lawsuit alleges that MV Realty and its founder, Amanda Zachman, engaged in unfair and deceptive acts in violation of the Unfair Trade Practices and Consumer Protection Law. 

Shapiro's office wants MV Realty to pay restitution to all homeowners who have suffered losses as a result of the company's conduct, strike all mortgages on real estate in Pennsylvania, stop entering into agreements with Pennsylvania consumers and pay civil penalties of $1,000 for each violation of the Consumer Protection Law, as well as $3,000 for violations involving consumers 60 and older. 

Ira Goldstein, president of policy solutions at the Reinvestment Fund, told 6ABC that most of the MV Realty mortgages in Philly and Delaware County involved properties in predominantly Black and brown communities, with 69% of MV mortgages in the city are recorded on Black-owned homes. 

On Wednesday morning, Philadelphia City Council held a public hearing to discuss the Homeowner Benefit Program and its impact on Philly homeowners, particularly those in Black and brown communities. Kerry Smith, an attorney with Community Legal Services, explained what she calls a "scam," similar to predatory lending during the the sub-prime mortgage crisis in 2007. 

Homeowners testified and described MV Realty's telemarketing tactics, including sending checks in the mail in order to help advertise the Homeowner Benefit Program. The homeowners were never told that the real estate firm would record mortgages on their properties when they signed, and many have had trouble getting out of the agreements. 

A spokesperson for MV Realty said that the company has helped more than 30,000 customers nationwide through the program, providing funding for home repairs and other costs in exchange for exclusive listing rights to the properties, arguing that its real estate agents "always work in a transparent dialogue" to explain the agreement's terms to clients. 

"New and innovative business models, like the HBA, can transform established industries and can sometimes draw questions from critics or outright hostility from those whose existing business model is threatened," the spokesperson said. "However, to suggest that MV Realty has engaged in unfair or deceptive practices is simply false. After a full airing of the facts, we are confident that the conclusion will be that MV Realty's business transactions are in full compliance with Pennsylvania law." 

Florida, where MV Realty is headquartered, was the first state to file a lawsuit against MV Realty for its "complex and deceptive scheme that attempts to skirt existing Florida law with the goal of swindling consumers out of their home equity," according to court documents filed by the Florida Attorney General's Office in November. The Massachusetts' Attorney General's Office also filed a lawsuit on Wednesday. 

The city has scheduled information sessions for homeowners and community members who were contacted by MV Realty or who signed agreements with the real estate company. There will be a virtual session on Dec. 19 and in-person sessions in North Philly and West Philly in January, for which homeowners and community members can sign up to attend