I have to like anyone that has issues with ABA's.  They reek of consumer fraud.

Thanks Frank.

3 minutes after posting this blog, I get this email from an agent that I work with, it was forwarded from the "good" closing company:

"We don't have enough in closing costs yet [as provided for in the contract]. Can you forward me the invoice for home inspection asap please? The lender won't let me use HOA or taxes. Thanks, Closing company"

If that client had used a lender that we have worked with in the past, this would not have been a problem!

This would not have come up a day before closing!

Now we have to scramble to make sure the client doesn't leave $2,000 on the table, which might end up being impossible. But at least they "saved" a few hundred bucks with that other lender. 

Frank, I have built my team of partners over 13 years. From handyman to closing agent and everything in between I have had these relationships for years. I get no compensation from any of them but I can trust them to do what I need done and in a timely fashion. They have my back and I have theirs. They are priceless!!! 

Bryant,

What do you do when a client wants to stray from your list of recommended partners? On the one hand you don't want to be accused of steering, but on the other hand you want to make sure everything is perfect for them. 

Frank, I actually work for Coldwell Banker and we do recommend our partners (both Coldwell Banker and Others) However, we also encourage our buyers to shop around, but warn them about the possible pitfalls.  BTW... we do use an ABA disclosure.  We make a minimal fee for the administrative service of entering the order into the system and obtaining the insurance binder information.  This minimal fee is not why we recommend the partners... it is because of their service.  They have competitive rates and great service. Anyway... the problem that we are running into is that the lenders are steering the buyers to their title companies.  Our P&S states where the closing will take place and the lenders are going against this.  Recently, we had one where we spoke to the lender and told them that they should check the P&S to see where the closing was to take place.  We also told them that we would be fine with changing the P&S if they could assure the buyer that he would save money with their recommended company.  We were ignored by the lender and the closing proceeded with their chosen title company.  The buyer actually paid $150.00 more to go through the lenders choice title company.  We contacted the loan originators manager and pointed this out to him and let him know that we had informed the buyer about this.  I don't know what will come of that, but I hope that the lender sends our buyer a check for $150.00.  I liked your post and the fact that you point out that ABA or Partners aren't always a bad thing.  It's important for buyers to understand that it's in their best interest to deal with a reputable company.  We deal with these companies every day and know who is good and who isn't.

Frank, I only work with Sellers so it's really not an issue. They all agree to take my advice. They need help and I'm happy to provide it. Plus if they do want to get additional quotes my "partners" will beat them every time. But they are free to use whoever they want. No pressure from me just sugestions. My sellers and I have a very tight bond and they trust me completely. If not, well, they wouldn't be my sellers. 

Katherine, thanks for your comment, but you missed a major point. I said that ABAs are ALWAYS a bad thing if they involve ANY money back. 

Why bother? The agent makes $10,000 on the deal and they need to make another $100 or $200 sending them to a particular closing company? And the reason being "minimal fee for the administrative service of entering the order into the system and obtaining the insurance binder information." What the heck are you talking about? This is bogus. This is a flat out lie in my opinion.

If you typed into your system "XYZ closing company" vs "Your Closing company", how does it cost you any more in administration? And why would the Realtor being paying for some special binder? The closing company does that. 

Please, I want explicit details on why a "minimal fee" has to be received by the Realtor or broker for using their partner. It is a flat out 100% profit center. THAT is why they are doing it, and THAT is why CB has that lawsuit.

Why not go above and beyond and cut out the shadiness?

Frank 

Apparently I did miss the point of your post.  I thought was about making sure that our clients get the best service providers.  As far as cutting out the shadiness... it's only shady if it's not disclosed.  I believe that it's then illegal.  We provide our customers with choices and they make an informed decision.  The agent doesn't get the administrative fee (which really doesn't even cover the administrative costs).  The brokerage gets that fee.  Anyway... I guess we'll have to agree to disagree on this one.  I do appreciate your posts though.

I have to disagree with you, Katherine.  It's less shady if it's disclosed....and although it is not a 100% iron clad guarantee that it's shady by virtue of having ABA, I too have issues if there's a money aspect to it.  Fortunately for all of us, that will be answered by the verdict of the lawsuit in place.

- Tchaka 

You really should read CLOSELY the lawsuit against CB. In that case, even though it was disclosed, they are getting sued. Sued for their fiduciary duty.

Again, I beg of you. Please tell me exactly how your cost is different if they use YOUR provider vs another provider. I understand admin fees, and I disagree with them, (see blog on admin fees) but I really want to understand why the broker needs to slice off a cut from the title company.

This question avoidance is my problem with this industry. I find the Achilles heals and I dig in until I get answers. Your avoidance is why consumers think Realtors are shady.

Lets go over this scenario slowly

1) Client Amanda goes with Your ABA Partner Firm. The broker gets $250 in profit sharing/ admin fee

2) Client Bob goes with another random closing company. The broker gets $0 in profit sharing or admin fees.

I understand that the customer might be better off since your partner is better, but how do you justify taking a profit sharing/ admin fee from your partner? I feel this violate the intent of RESPA laws, but you all found creative ways around that didn't you?      

Ask Rob Robinson- Lehigh Valley PA what he thinks about ABAs and profit sharing. What you are doing might be fine and only $100- $1,000 but what stops you from charging the "partner" more and more?

REAL ESTATE CLIENTS, DO NOT SIGN ABAs that are hidden into the disclosures. (yes they sign them, but they think it is normal and they don't really know what they mean, or that you are profiting from them in 2 places)

Frank 

I find that the 'consumer' in general has no idea what a Title/Settlement/Closing company does.  As such, they TAKE THE 'advice' of the Realtor or Mortgage Broker....

..yeah, tell me all of you offer three options.....

The RESPA allowed profit sharing in these arrangements is total fraud IMO.  I've gone to a Re/Max agency with 143 (yes 143) agents.....I personally talked to 62 of them.....  NOT ONE has ever used another Title company (working for this Re/Max) because of profit sharing.

When I explained the differences in the services in Title companies......the answer was FOR THE MOST PART....."Why would I use someone else since I am getting a part of the action"  AND YES, that is a VERBATIM quote from one.

I challenged the owner and was pushed aside saying "I never told my people WHO they had to use". In direct contrast to some of the OTHER Realtors of that agency I spoke (about 'pressure')

I'm totally sick of REALTORS saying "every home is not a good match for my client"..the 'ethical Realtor

I'm totally sick of Mortgage Brokers saying "every lender/loan is not a good match for my client"...the ethical Mortgage consultant

And totally sick of both saying "This is the best Title Company for you....we use them ALL the time..sign here"

Frank

A thought provoking post to say the very least.  I've decided to "weigh in" on the matter since I deal with it almost daily. 

At this time, there are two seminal class action suits unraveling on the national scene with the potential of having a broad and sweeping impact on the future of AfBA's.   The most publicized case is being tried in a state court in Minnesota the other is filed in the more typical venue of a federal district court in Maryland.  The Minnesota case may eventually redefine the fiduciary responsibilities of a real estate agent in regards to a purchaser in a transaction. 

The appropriate concept to consider when trying to comprehend the focus of the litigators in these cases is “corporate culture.”  In other words, has the management of the real estate brokerage created an informal corporate culture that punishes agents who don't steer business towards in house title operations.  Real estate brokers traditionally earned profits by splitting commissions with real estate agents.  Within the context of the new business model, brokers offer very high commission splits to agents who in turn drive business to lucrative in-house title companies and mortgage companies.  I know of at least one regional real estate brokerage that realizes more revenue annually from it's affiliated partnerships than it does by listing and selling homes. 

There's always a suggestion of impropriety when a real estate agent accepts a fee for procuring a title order without providing core title services. With that being said, the real story is hidden in the nuances.  Corporate culture is about the informal rules that don’t appear directly on web sites or in policy manuals and mission statements.  It’s about “the wink” and “the nod” and access to season passes to sporting events, and other valuable perks, for those who understand the system.  As a practical matter, increased costs are passed on to consumers in two forms.  Joint ventures often produce higher fees charged to purchasers on settlement statements.  Additionally, there's always been a question of reduced services being offered in a noncompetitive environment. 

A number of the large underwriters that I work with are quickly reconsidering their stance on the AfBA.  While it was a popular concept in the past , it may be virtually extinct in the not too distant future.  Title insurers are accessing the potential downside when a jury eventually reaches into the deep pockets of a title insurer by granting an enormous award to the aggrieved class.  It will happen because title insurers have a legal obligation to police the actions of their title agents.  I know for a fact that it's becoming increasingly difficult for a start-up AfBA to sign up with a title insurer. Existing joint ventures may find themselves losing policy issuing privileges due to relatively minor matters revealed during annual audits.

Last month, the feds indicated a change in mood towards the AfBA when the Government Accountability Office issued a report  that questioned competitiveness in title insurance markets.  The feds first opened the door for joint venture in the late 1980's and are finally looking at the unintended consequences to consumers as a public policy matter.  Cick here to view GAO report.  Partners in AfBA's who are currently facing civil litigation may eventually find themselves dealing with regulators and/or criminal culpability in time.

I am not a fan of the AfBA and do not believe that bundled services offer any real benefit to consumers.  I believe in robust and fair competition between settlement service providers.  Talk to me about competence and professionalism, not convenience.

Ed - by convenience you mean "They're right down the hall"? :^) wink , wink....

Ed:

 I found your comments very informative.  I am wondering if you could tell me what is meant by "core services".  We only just started using our branded title company over the past couple years.  When we submit an order, we actually input the order into a web-based system including all contact information, etc.  We then fax a copy of the contract to the title company and contact the buyer regarding who they are choosing for their homeowners insurance.  We then arrange with the insurance agent to get the binder to the title company and make sure that they have the mortgage company information for the mortage clause.  For this, we receive an admin fee of $40.00.  Quite honestly, I would rather not do any of the work and receive nothing as $40.00 doesn't cover the time that we put into it.  The main reason we use the branded title company is because they offer very good service and are competitively priced.  They go above the call for us and our clients.  However, only a couple of our agents actually use the branded title company as many of them just can't be bothered with the extra work involved.  Can you tell me if the services we provide would be considered "core services".  If not, I have to wonder if we should be doing the administrative part. Also wondering about your thoughts on the lender choosing the title company.  This is usually what happens in our area.  Sometimes, the buyers actually pay more with the lender's pick than they would have using our recommendation Thanks.

Frank:  I read that article more closely, as you recommended.  That is a very different situation than what we have.  First of all, the branded title company that we use is not owned or even partially owned by our offices.  Secondly, the ONLY fee that we get is the $40.00 administrative fee and our agents receive no extra incentives for using the title company. Many of them choose not to bother as there is more work involved.  Lastly, our branded title company is NOT charging more than the competitors.  So, this is a totally different situation.  My personal opinion is that I would rather not do the work involved and not get the admin fee.  I'd still recommend them because they do good work.  We do this with most of our recommended servicers (mortgage companies, home inspectors, roofers, electricians, home stagers, etc.)  I do agree that if someone is making extra money at the cost of their client that they are not living up to their fiduciary duties.  However, if a client is receiving good service, not paying more for it and is informed, then I really see nothing wrong with the program.  I think it's a shame how one bad apple can spoil the bunch.  Not all Coldwell Banker affiliates are the same. 

Hi, Frank.  Good discussion.

Katherine said:  "We make a minimal fee for the administrative service of entering the order into the system and obtaining the insurance binder information."

Money earned in a legal ABA is profit distribution based on invested capital.  "Fees" - minimal or not should be truly earned for necessary services rendered.  I trust that the title company is perfectly capable of entering the order into the system themselves.  It's likely that the time of the service would be less than one hour.  I'd assume the level of experience for an employee trained to enter an order might generate compensation of say, $10 per hour?

Paying a fee to a Realtor or lender for inputting a title order, is a sham and a kickback.  Sorry - got to call it what it is.  The sooner we face this reality the sooner we will be healed.  Each time you accept that fee, think of your name in the newspapers.  Is it worth it?  Did all of the 600 agents under investigation in Minnesota understand what they were doing was wrong?  Given the chance, wouldn't they have preferred that someone warn them?  Well - here's your warning. 

There is a big difference between an ABA run as a legitimate company with investors who happen to be in the real estate or mortgage biz and a SHAM fee generating machine that couldn't survive without business force fed from the affiliates.

Diane,

As always, thanks for your input.

I agree that there is no reason for the agent to do MORE work with a partner. That isn't your job, and you shouldn't be paid to be the title company's assistant. Maybe the other companies that charge more, do so because... they are better? And they don't need to hire agents for $40 to input data.

And like Diane said, is it worth being named in a lawsuit? Sure you might "win" but you might win after spending thousands in legal fees. Sure CB will hire THEIR lawyer and tell you not to hire a lawyer, but do you really want to be on their side? No?

Bag the $40 admin fee, and send them to another Title company that does good work. Maybe they will match the price, and if not, remember that cost isn't the only priority. Otherwise, your clients would have used Redfin! 

Absolutely.

The real concerns though are FIDUCIARY DUTY and CONFLICTS OF INTEREST.

Just suppose - and in our real world stuff does happen - there is a post closing problem - some kind of title claim.

Do you really want to be vulnerable and open to the argument that you steered the consumer to a company for YOUR benefit rather than THEIRS?  Even if you believe the company provides superior service, you leave yourself open to the charge of placing your own interest above that of the consumer you serve.

It's a choice.  Make your decision with eyes open.

Lots of good food for thought here. I must admit that I hadn't given the liability of this issue much thought before. Wondering what you think about the fact that our Buyer Agency Agreements contain the following wording:

• "Agency's Role. Buyer acknowledges that Agency is being retained solely as a real estate agent and not as an attorney, tax advisor, lender, appraiser, surveyor, structural engineer, home inspector, or other professional service provider. Buyer has been advised to seek professional advice concerning the condition of the property and legal and tax matters.  It is understood and agreed by Buyer that Agency may provide names of service providers or products as one of a number of choices available to Buyer. Agency shall not be liable for any action, inaction, failure, negligence, error or omission of a service provider or product. "

I realize that people can and will sue regardless of what they sign, but do you not agree that this puts them on notice?

By the way, this wording is was provided by the NH Association of REALTOR and is a standard form for use in our state.

What's really interesting about the current climate is that everything is back on the table.  In the wake of media spotlight on predatory lending abuses, sham ABA and kickback suits, and the subprime collapse, the notion of how to disclose and what kinds of actions can be appropriately dismissed with disclosure are all being revisited.

I expect FIDUCIARY DUTY to reign supreme in future guidance from NAR, lawmakers, and regulators.

Hanging our hats on RESPA and other types of disclosures doesn't embrace the spirit of a fiduciary.  That's what the "new" way of doing business in our real property world is all about.

It's new and it's good.  It's a collective new vision.

I hope that others will chime in, but my initial thought is the following:

1) I don't see anywhere in there the allowance for the Realtor or brokerage firm to receive any money from services outside of real estate services.

2) I'm not a lawyer, but there are certain things that you just can't wave. By putting "I'm not liable" that means nothing. In Virginia you have 3 days to review HOA docs. It is NOT legally enforceable to say "we hereby remove our right to review HOA docs." 

3) I am certain that the CB that is being investigated had the exact same disclosure statement.

Also this statement might HURT you since you are saying that you are a real estate agent and nothing else. Meanwhile you are performing administrative tasks for the closing company! You just told them you are not doing anything, yet you are.

Frank 

Katherine, I'm curious if an attorney could poke holes in this by pointing out that "provide names of services providers or products...." implies more than one and by only going with the ABA, the brokerage is steering.

Just a thought.

- Tchaka 

Tchaka: 

Yeah, I know what you mean.  I am sure a good attorney could poke holes in just about anything.  You bring up another good point... how do we prove that we recommended more than one provider unless we have them sign, yet another, disclosure?   This discussion reminds me of a risk management course I took not long ago.  The instructor suggested that we remove all brochures for any service providers from our offices and that if we have a buyer looking for recommendations to just hand them a phone book.  I think that's taking it too far.  People look to us as professionals and experts in various aspects of real estate transactions.  They expect us to know: good lenders, title companies, contractors, schools, neighborhoods, etc.  If we are too paranoid to give them the advise that they seek ... who benefits from that?  I believe the key is to educate our clients and let them make an informed decsion.  Further to that, if you think that the person you plan to work with is the litigious type, then maybe don't contract with them.  Some business just isn't worth having.

I think many would be hard pressed to not know THREE Title companies that meet the your personal expectations, let alone the client's. Worst case, you would just rotate them if the client truly will not choose.

(Unless of course you are in a town of 500 people.... but you get my point)

Tchaka,

I also immediatly saw the PLURAL part of the statement:

"It is understood and agreed by Buyer that Agency may provide names of service providers or products as one of a number of choices available to Buyer."

I really don't understand how someone can deal with just one Title Company for multiple transactions throughout the year....and KNOW if they (the Title Company) are STILL competitive... are still leading edge... are still THE BEST out there.... etc.'

I love competition, ot keeps me on my toes...and do not fret one bit when 'my clients' (Realtors/Mortgage Brokers) use multiple companies (if the consumer cannot or will not choose themselves without a recommendation.)

I agree with you Rob.  I have a settlement company here that I strongly recommend (no ABA) but I do have backups and I tell clients that I have choices for them.  Same with appraisers.  I also encourage them to call all and select after interviewing.  They often don't, but that decision is theirs to make, not mine.

I love competition too.  My idea of competition is Angelina Jolie and Halle Berry fighting over me...all the while knowing that my GF's the only one I'm going to.  Hey wait, isn't that kinda like the whole ABA thing that Frank is  against in this blog???!!!! 

She's my ABA. :-) 

- Tchaka 

lol - I guess my wifey's my ABA and my girlfriend is simply to make sure wifey is still the BEST :^)

Rob, I cannot top that one!  I believe you have solved the whole ABA and competition issue with one sentence.  Nice work.  Now to find out if we're allowed back in our respective homes tonight. 

- Tchaka 

I don't recommend multiple Title companies! Wow, imagine that! I said it!

There is nothing that says that we can't have reliable partners. I can't FORCE them to use people that I trust, but I can recommend the ones that I know are good.

If they try and go elsewhere to save $100, yes I discourage them and tell them to call other clients that went with a discount place and they can hear the horror stories first hand.

I get my taste of the other title companies when I am the seller and the buyer picks a closing company. I have yet to find a sharper crew.

Also guess what? My listings say "Monarch Title Preferred" and about 50% of the buyer's agents agree to this.

The myth of giving 3 companies was created by an ABA in order to appear to be on the up and up.

Frank 

For clarification Frank, I have a #1 title company that I recommend.  In VA it's Monarch and in FL it's TLC Title.  I've used those companies and they've both earned my business therefore they're my go-to settlement companies.  But I do let clients know that I have other honest options that I can recommend if they'd like.  And I don't make a dime from any of my 'affiliates'.

- Tchaka 

Frank, why would you really suggest an ABA  tends to or does 'offer' 3 companies.... wouldn't a Realtor NOT GETTING RESPA approved ABA kickbacks be MORE LIKELY to offer alternatives right up front?

The differences in Title companies can be language, location, fees, hours, etc...  in addition to 'service'. MY experience is that the 'independent Realtors' DO spread some options out to the client (no, not like a list of 100)... and the ABA tied in Realtors only offer/recommend/present....their 'OWN'. 

Greedy bastards just scaming the client.

Tchaka - This is all many of us want.

"But I do let clients know that I have other honest options that I can recommend if they'd like."

Kudos to you. 

Wow!

This thread is like a Title Agent's (Non ABA) dream.   I am so impressed to see all of you involved in some serious dialogue about the "DARK SIDE" of our industry. 

We are fighting this battle every day in my area (South Jersey). There is an amazingly large amount of Real Estate Agents who absolutely refuse to go against the grain of their Broker & Broker/Owners directives to feed the in house or affiliated Title Partner.   The most disturbing of these situations is when a former Realtor Client goes to one of these Agencies and no longer refers business your way. 

The buyer ends up paying more than they have to, and the Realtor turns a blind eye to the entire process so they won't have to answer to the management about not using the "preferred Title agency".

My first ever blog entry covered this exact subject.  I'd link to that if I knew how,.....any recommendations?

TOM - I think this is the link of YOURS you are referring.

http://activerain.com/blogsview/49307/Does-the-bundling-of

I LOVE this!  Where did you get it Can I use it?