Why Armstrong v. Zillow Signals a New Phase of RESPA Risk
For years, mortgage steering enforcement focused on familiar territory. Cash kickbacks. Sham marketing agreements. Side deals between loan officers and real estate agents. That era is ending.
The proposed class action in Armstrong v. Zillow Group reflects a structural shift in how referral risk now arises. The allegation is not that Zillow paid agents directly for mortgage referrals, but that it engineered a digital ecosystem where access to homebuyer demand was conditioned on steering behavior.
In other words, the alleged referral fee is no longer cash. It is visibility, lead flow, and continued participation inside a dominant platform.
This theory matters because it fits modern housing markets far better than traditional RESPA enforcement models, and it places a wide range of real estate and mortgage platforms directly in the litigation crosshairs.
The Core Allegation
When Leads Become the Currency of Referrals
According to the complaint, Zillow leveraged its Premier Agent and Flex programs to create an implicit bargain. Agents received access to high intent homebuyer leads, preferential placement, and continued participation on the platform, but allegedly only if they directed buyers toward pre approval with Zillow Home Loans.
Agents who met internal pre-approval benchmarks were allegedly rewarded with increased lead volume and priority placement. Agents who did not, allegedly saw their leads reduced or were removed altogether.
From the consumer’s perspective, Zillow Home Loans allegedly appeared as the default or exclusive financing option, without meaningful disclosure that alternatives existed.
The named plaintiff alleges she was never informed of potentially cheaper loan options and reasonably believed her agent’s recommendation was unbiased, when in fact the agent’s access to Zillow leads allegedly depended on steering behavior.
Why This Theory Is Different
Implicit Agreements in Digital Systems
RESPA Section 8 does not require a written contract or an explicit quid pro quo (obvious exchange). An agreement can be inferred from a course of conduct, and the Armstrong complaint relies heavily on that principle.
Rather than pointing to direct payments, plaintiffs allege that Zillow provided things of value in the form of leads, enhanced visibility, and platform access. In return, Zillow allegedly received increased mortgage volume, success fees, and advertising revenue tied to its in house lender.
What makes this theory powerful is that it treats platform design itself as the mechanism of referral. Dashboards, quotas, lead allocation algorithms, and monitoring tools allegedly replaced traditional referral contracts.
The result, according to the complaint, was a system where steering was expected, measured, and enforced without ever being reduced to writing.
Regulatory Signals Were Already There
This case did not emerge in a vacuum. Federal regulators have been laying the groundwork for years.
In February 2023, the Consumer Financial Protection Bureau issued an advisory opinion warning that digital mortgage comparison platforms could violate RESPA when providers are presented in a non neutral manner in exchange for compensation.
The Bureau made clear that form does not matter. If higher paying providers receive preferential treatment, the arrangement can constitute an illegal referral fee.
Later that year, the CFPB penalized Freedom Mortgage and Realty Connect for providing benefits to realtors in exchange for loan referrals. While those cases involved more traditional benefits, the logic extends naturally to platform based incentives or kickbacks such as lead flow and visibility.
Armstrong applies those regulatory principles to a modern, vertically integrated real estate platform.
Why Zillow Is Not the End of This Story
Zillow is simply the first large scale test of a broader theory. The practices alleged in Armstrong are not unique to a single company. They reflect a business model increasingly common across real estate, mortgage, and lead generation platforms.
Any platform that combines consumer demand aggregation with affiliated mortgage services faces similar exposure if access to demand is conditioned on steering behavior or if financial incentives effectively limit consumer choice.
This includes brokerages with in-house lenders, digital referral marketplaces, and bundled service offerings that appear consumer friendly on the surface.
High-risk Business Models Under Possible Scrutiny
Legal exposure has increased for several business setups:
- Digital platforms with affiliate lenders
- Traditional brokerages with in-house mortgage companies
- Lead-generation services with success fees
- Mortgage lenders offering incentives to agents
The Fiduciary Overlay Raises the Stakes
One of the most consequential aspects of the Armstrong theory is its treatment of real estate agents’ fiduciary duties.
Agents owe duties of loyalty and disclosure to their clients. Plaintiffs allege that Zillow knowingly designed its system to induce agents to breach those duties by prioritizing Zillow Home Loans over independent advice.
Allegations include monitoring agent communications, providing scripts, and penalizing agents who recommended outside lenders.
If proven, this transforms the case from a technical RESPA dispute into a broader challenge to platform driven conflicts of interest. It also opens the door to aiding and abetting liability, consumer protection claims, and enhanced damages under state law.
What Comes Next
The litigation will test whether courts are willing to recognize platform based steering as a thing of value under RESPA. Early rulings on motions to dismiss will be closely watched across the industry.
Beyond Zillow, copycat litigation is likely if plaintiffs survive initial challenges or secure meaningful settlements. State attorneys general may also step in, particularly where state consumer protection statutes treat RESPA violations as per se unfair practices.
Most importantly, Armstrong signals that the era of informal, algorithmic steering is no longer legally invisible. Platform design choices are now evidence. Metrics are discoverable. Defaults matter.
For companies operating at the intersection of real estate, mortgage lending, and digital lead generation, the message is clear. Neutrality, disclosure, and genuine consumer choice are no longer optional. They are the difference between a scalable growth strategy and the next wave of class action litigation.
Rain Intelligence tracks emerging litigation and regulatory theories across real estate, fintech, and digital platforms to help legal teams identify risk before it becomes widespread class action exposure. Book a demo now!
