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Ethical "Affiliated Businesses"? Or Bilking & Kickbacks. Title Companies Watch Out!

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

I don't get something. "Affiliated" businesses and how they are legal.

FIRST OF ALL LETS DEFINE RESPA? 

Respa's website says "RESPA is about closing costs and settlement procedures. RESPA requires that consumers receive disclosures at various times in the transaction and outlaws kickbacks that increase the cost of settlement services."

Could a Realtor that is in "partnership" with a Title company, please help me understand why it is ok to skirt around this law? More frequently I am finding large real estate companies "partnering" with settlement companies and doing so in a manner that technically gets them around the kickback laws.

One AR blog even lists as a reason to join XYZ company:

13.     Does the company own affiliated businesses?

           Do the agents share in this?

So the law was designed to stop Real Estate Agents from getting a $100 or $200 incentive to drive business to a particular Title company. Yet that doesn't stop the "brilliant" realty firms that found a loophole around this.

This is the loophole: 

The agent becomes a tiny % part owner in the settlement company. I don't have the exact details (maybe somebody can post a response and spill the beans) but this part ownership is a legal way for them to get an indirect kickback. So while they don't get $200 per deal, they get a year end revenue share that is somehow tied to the # of closings with that company (one person said it isn't tied to that, but I would have to see details before I believed that an agent would be allowed to own a part of 1 title company, while sending all your business to another).

So please, agents that are part of these big companies, please help me understand how you rationalize this. While some of you might say that you have the client sign a disclosure form, how many of you with a straight face can tell me that your client "gets" that you are making $200 for them to go with a particular company? As if we don't make enough money on the deal, we need to bilk them for a couple hundred more bucks? You know that most are signing that because they feel pressured into it, or they have no other alternatives.

Ok some of you might say "but the price is the same everywhere," don't believe your own BS. In the long term this is price fixing and a RESPA violation.

Soon there will be a class action that will come after these firms and the Realtors that are colluding to the detrimine of their client.

Please discuss!!

Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com

Blog.FranklyRealty.com Featured in BusinessWeek, CNBC, WSJ etc.

                      

(P.S. That goes for those of you that sell Home Warranties and you don't disclose the $70 "admin" fee/bribe that you get for selling warranties.) 

 

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Comments (16)
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Nick M.
Certified Residential Appraiser- West Palm Beach Real Estate - West Palm Beach, FL
Realtor-Appraiser in West Palm-South Florida Real Estate Appraiser

Hey Frank.. thats the way to shed light on the situation. Kickbacks are so common that people dont even think twice about it! very sad to risk your license over something so minimal. Give them business becuase they get teh job done..! Its all I ever ask for!  You also brought up the point about the home warranties..

This is all against RESPA, just 'dressed up' in a different manner. Like the teacher says in the apprasial class, "if it looks like a duck, sounds like a duck, then no matter what its made out to be.. it's still a duck".

(we need simple examples down here is SE Florida!! haha joke!! but yer guds back into yer holsters people)

Jan 29, 2007 07:28 AM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA
Thanks Nick, but I really want somebody from the big companies to explain why this is ok and NOT a RESPA violation.
Jan 29, 2007 08:47 AM
Tchaka Owen
Galleria International Realty - Hollywood, FL

Frank, I've wondered about this and haven't quite figured out how it legally works.  When I was in the DC area I recall that one of the realtors I worked with was with Weichert at the time and they had an in-house lender they were encouraged to do business with.  He didn't because he didn't think it was right, but there must be a way that it's legal.  I will follow this thread and hopefully a lot of people will chime in.  

- Tchaka Owen
http://tchakaowen.blogspot.com/

Jan 29, 2007 08:49 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Frank

My comment was so lengthy that I decided to make it a separate post.  Hope you don't mind.  Please see: A Comment about Joint Ventures.

Please let me know your thoughts.

Jan 29, 2007 09:02 AM
Brian Brady
Matthews Capital Markets - Tampa, FL
858-699-4590

It does not violate RESPA.  You asked for an explanation how it DOESN'T violate RESPA on my post.  I can only tell you the opinion of HUD.  You make compelling arguments against these actions, however, HUD states that common ownership, if disclosed properly, is allowed. 

Real estate licensees may also earn a loan commission if they fulfill 7/13 loan origination functions.

Don' shoot the messenger!  You need to take this to HUD. 

 

Jan 29, 2007 09:40 AM
Ed Rybczynski
Integrity Real Estate - Havre de Grace, MD
Your Source for Local Real Estate

Frank

Brians right.  Joint ventures are completely legal (RESPA compliant) if structured correctly.  Most of my first hand experience has been in the states of Virginia and Maryland where I feel many joint ventures are not formed correctly. 

Jan 29, 2007 09:49 AM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

I respectfully disagree.

HUD's intent is to not allow these 12 month temporary revolving LLCs designed to creatively give kickbacks to Realtors, regardless of clients signing a vague piece of paper saying that there might be affiliated partnerships. 

You can read on the Realtor.com page on Respa  especially the part that discusses SHAMs. It links to more information on the SHAMs that they are referring to.

 Somebody please give me an example of a SHAM and an example of a NON-SHAM that includes a Realtor pocketing money from a Title company.

 

(Note that Realtor.com makes public part of the info but then puts the SHAM info behind their login screen (which I can never remember how to get in every time I try once a year, and no password reminders dont work for me when they are selling our email addresses so I have to use a temporary one with them) 

 

Jan 29, 2007 02:47 PM
Tchaka Owen
Galleria International Realty - Hollywood, FL

Frank, thank you for that link - it now shows me in black & white what I've known about but not concretely.   I agree with  Brian and Ed that if structured correctly, they will not violate RESPA.  But how often is that done?   The fact that RESPA has an Additional Criteria addendum tells clearly that people have found ways to circumvent the intended purpose of the Safe Harbor Test.

 

 

Jan 30, 2007 05:10 AM
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Hey Frank, I forgot to tell you about a tactic of my old company TrusXXX Advisor that I believe could very well have been illegal.  The president was Evan XXX who is now with MXXXX Realtors out of McLean and I'm convinced something shady was going on with a settlement company I will refer to as XYZ Settlements.  Towards the end of 2003 I did a refinance for a client and I noticed that the fees were quite high (esp. for a loan that was only about $150k).  The client asked me to explain the fees and I did my best, but didn't feel I was convincing enough.  Shortly after that I completed a refi for a friend and again noticed high fees.....the fee in question was a $300 charge for an entity named TXXX Title LLC or something similar.  Keep in mind that the standard settlement fees were already being charged.

I decided to find out what the extra $300 was for and called someone at XYZ (given that they have a fiduciary responsibility to all parties) and the best answer I could get is that it served no purpose other than to fill an account for TXXX Title.  In case you're wondering, that was an entity created by Evan LXXX that charged $300 from each and every client that settled through XYZ Settlements.  So why not settle elsewhere?  Because we were mandated to send all our clients to xYZ - we had no choice but to comply.  The exception being if the client requested another company.  But when we had the choice, it had to be settled through XYZ Settlements. 

I'm not sure XYZ did anything wrong, ie, they submitted funds to an entity they were directed to.....but I'm pretty sure the funds paid to TXXXX Title were for ZERO amount of work.  Ie, no work towards their settlement.

How do you like them apples?

- Tchaka Owen
http://tchakaowen.blogspot.com/

Feb 03, 2007 09:51 AM
Anonymous
Diane Cipa
Tchaka:  What you've described is blatantly non-compliant under RESPA.  The folks involved should seriously consider closing shop and heading for the hills because RESPA police are aiming for them.  Here's a recent post on Radical.
Feb 12, 2007 10:01 AM
#10
Tchaka Owen
Galleria International Realty - Hollywood, FL

Nice Stuff, Diane!  Props to Ivy Jackson...let's hope she's able to make a difference.  There are some good title companies out there who get a bad name because of the nefarious ones.

- Tchaka Owen
http://tchakaowen.blogspot.com/ 

Feb 13, 2007 01:08 AM
Diane Cipa
The Closing Specialists® - Ligonier, PA
Thanks, Tchaka.  We're trying. :)
Feb 13, 2007 01:32 AM
Rob Robinson- Lehigh Valley PA
Bertrum Settlements (Title & Abstract) - Allentown, PA

Frank -

Coming in late.

I can see where RESPA allows ABA's (on paper).

I CANNOT understand why Realtors and Mortgage brokers use them if they take the position that "all Realtors" are not the same or "all Mortgage Brokers" are not the same.

I only ask for their perspective - why tie in?  Is it money?  Are the fees of the Title Company a perfcet fit for their client?  Etc...

Mar 19, 2007 03:51 AM
Dan Allred
Allred Realty - Thousand Oaks, CA
DRE#01761967
Frank- in my state it has already begun with some large co. being in law suits
Mar 19, 2007 03:55 AM
Tom Giansante
The Title Company of Jersey - Wildwood, NJ

Frank,

I'm just hitting this blog late as well.  You have really hit this on the head.  Way to just put it out there.

I work for a Title Company in Cape May County NJ, and this SHAM stuff is running rampant in our area.  I'll try to find some regs and get them back to you. 

Good work!

Apr 05, 2007 03:33 PM
Anonymous
Warranty Rep

When it comes to the "marketing fee" returned to the brokerage for the home warranty, it is not a violation of RESPA. It clearly states that if the Real Estate company is marketing the product, filling out the paperwork, passing information on to clients, they are entitled to this fee. The marketing fee disclosure is also printed on each warranty application. Warranties should not be marketed by an agent just for the amount of the marketing fee, but for the quality of the product. If an agent or brokerage does not agree to the fee, they do not have to accept it. They could take the fee that they will receive and pass it on to their clients if they feel that strongly about it. Funny thing is, one of the most frequent questions asked by an agent is "how much is the marketing fee??"

Apr 07, 2009 01:27 PM
#16
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