Judge grants Zillow motion to dismiss RESPA, RICO lawsuit

A federal judge granted a motion to dismiss one of the lawsuits accusing Zillow of a kickback scheme that steered borrowers to its more expensive in-house financing business and affiliated agents.

U.S. District Judge James Robart found the complaint lacked statutory standing for a Real Estate Settlement Procedures Act claim and the plaintiffs failed to identify any deceptive conduct given Zillow's terms of use and disclosure, according to a court filing Monday.

"Plaintiffs' claims of lack of notice are implausible given Zillow's express, repeated disclosures," Robart said in the order. "Plaintiffs fail to plead specific facts showing how defendants' practices actively undermined the home-buying process, restricted informed lender choice, or eroded trust in real estate professionals."

The motion partially lifts a legal overhang on Zillow's Premier Agent, Flex and mortgage business, Zillow Home Loans, but the class action was dismissed without prejudice, which means the plaintiffs can refile by Aug. 17. The likelihood a new complaint survives a fresh motion would be low, according to Keefe, Bruyette & Woods. The suit has already endured five rounds of complaints.

Originally filed in September by homebuyer Alucard Taylor, the lawsuit alleged Zillow's Flex agent referral program was deceptive and helped maintain high fees. It said Zillow did not disclose the referral fee it collects from Flex agents, which the plaintiff claimed violated RESPA, and that buyers must sign touring agreements advertising buyer-agent services as free, despite the agent receiving a commission.

"Throughout Zillow's platform, our terms of use, 'Contact Agent' interface, touring agreement and affiliated business arrangement disclosure make Zillow's practices clear to every consumer," the company said in a press release. "Plaintiffs did not allege anything that would deceive a reasonable consumer."

The suit expanded in November to add two Racketeer Influenced and Corrupt Organizations Act claims, which alleged Zillow and participating brokerages were an enterprise built on deceptive digital funnels, scripted sales tactics and undisclosed fees.

It was combined a month later with another lawsuit, which accused Zillow of pressuring agents to steer buyers to Zillow Home Loans for preapproval by rewarding them with more and better leads.

Plaintiffs claimed Zillow's tools drove up what buyers paid for homes, but of the 11 plaintiffs in the case, only two used Zillow Home Loans, and neither could show that drove up their costs, the company said. 

"What the court ultimately found was that plaintiffs had described ordinary business activity and called it a conspiracy," Zillow said. "After a whopping five rounds of complaints, they still hadn't identified the who, what, when, where, or how that would connect Zillow's standard practices to any actual injury, so the court dismissed every count."

Zillow has frequently been accused of steering buyers over the past 12 months. The company was sued by a real estate agent earlier this year, and has taken fire from rival Compass and the Federal Trade Commission.