What duties does a realty broker or agent owe home buyer clients when it comes to recommending title or other settlement services?

When a title company affiliated with an agent's firm is not the lowest-cost provider in the local market, should the agent mention that fact?

A major class action suit filed in Minnesota in late February is focusing new light on those questions, and could serve as the model for similar suits against large realty brokerages nationwide.

The Minnesota suit, filed by home buyer customers of Coldwell Banker Burnet, one of the largest realty firms in the state, charged breach of fiduciary duty because agents allegedly steered the buyers to Burnet's title affiliate, despite the fact that its fees for settlement and title services were higher than some local competitors.

A spokeswoman for Coldwell Banker Burnet said the firm had no comment on the suit, and does not comment on pending litigation as a matter of policy.

Plaintiffs Kenneth and Dylet Grady charged that Burnet agents intentionally steered them to Burnet Title without disclosing that its "fees and charges are among the highest, if not the highest, in Minnesota" -- several hundred dollars higher on a $200,000 mortgage.

Burnet agents also did not disclose a number of material facts, the suit alleges, including:

• The retention by Burnet Title "of at least 75 percent of each insurance premium" paid by home buyers.

• Pressure exerted by Burnet management on its sales associates "to direct their clients' closing and title insurance business" to its title affiliate, "instead of lower-priced competitors."

• Financial incentives provided by Burnet management to sales associates and office managers "to entice them to recommend and direct clients' closing and title insurance business to Burnet Title," rather than to lower-fee competitors.

Among the alleged incentives: A "quick check" program that allows sales associates closing at Burnet Title offices to receive their commission compensation at the settlement table rather than later. Other inducements included a "partnership program" that provides agents who refer settlement business to the affiliate "financial rewards," such as payment of retirement plan contributions and participation in "bonus pools."

Under Minnesota statutes and common law, Burnet "owes fiduciary duties to its clients and therefore is obligated to act in its clients' best interests at all times; and makes clients aware of all "material facts" that might affect clients' interests, according to the suit.

The Burnet case is considered potentially significant nationwide because most large realty brokerages have at least one -- and often multiple -- affiliated business relationships with title, settlement, mortgage and other service providers. Major realty firms look to these affiliates to provide significant income, and argue that the affiliates' dependability, timeliness and high service levels compensate for any differential that may exist in their pricing levels compared with independent service providers.

Though class actions and individual suits have been filed challenging affiliated businesses in recent years, most of them have been at the federal level and based on claims under the Real Estate Settlement Procedures Act (RESPA.) Most have been unsuccessful, as most large and sophisticated realty firms seek to comply with RESPA requirements in structuring their affiliate relationships. Among other prohibitions, RESPA bans referral fees and kickbacks among realty service providers.

This suit, however, sidesteps RESPA and the federal court system and instead grounds itself in state and common law claims. The Grady suit estimates the affected class of Burnet home buyers to be in excess of 10,000, and lawyers familiar with the case say potential liability is in the tens of millions of dollars if a court certifies the case and Burnet loses at trial.