Earlier today, Frank LLosa posted an article named, Ethical Affiliated Businesses? Frank is visibly and rightfully concerned about the blatant abuses of RESPA by the participants in many joint ventures. I am morally and philosophically opposed to any development that restricts free trade and competion in real estate markets. The joint venture certainly fits this mold and poses a real threat to the integrity of the entire industry. In my blog to the title community, Title-opoly, I wrote:
For many title agents, the joint venture is analogous to a noose at a lynching. It's a manipulative and controlling invention that will continue to cripple real estate markets until there is no competitiveness left among settle service providers.
For anyone wishing to read the entire post, please see: In the Beginning.
Rather than write a lengthy comment to Frank's post, I decided to share a comment that I made on Radical Title Talk. See: Is this really what HUD had in mind when it authorized ABA's?
I visit your blog often and decided to weigh in on the ABA. Don't think that you're alone on this issue; your concerns are shared by title company owners throughout the nation. The difference between you and other title agents is that you're well researched and trying to do something constructive. Most others are just waiting and hoping for the best as their "piece of the pie" grows smaller each day.
The concept of bundled services in a real estate transaction was the brain-child of the Reagan Bush administration during the late 1980's. The federal mood and agenda at the time was one that encouraged big business. It was thought that "deep pockets" paired with technology could create a business model that reduced costs and improved services for consumers who were purchasing or refinancing a home. It's baffling that the feds have done nothing to change the anti-competitive and ultimately dangerous business environment that presently exists for the title professional.
We both know that the vast majority of joint ventures currently in existence are structured illegally. Consumers are horribly overcharged and badly represented as the title agent in a directed business arrangement has no incentive to provide a service that is anything other than mediocre. Can you image sending your children to school in the morning while telling them that you expect nothing but less than average accomplishments academically, socially and athletically? The entire concept behind the joint venture is senseless. We are after all talking about someone's home and one would hope that such an important endeavor would attract the best and the brightest.
I have to agree with your assessment that ALTA has made the situation worse by doing nothing. It should come as no surprise, though, as a handful of title insurers effectively control all land title associations. Through the joint venture, title insurers control much of the business that belonged to title agents only a decade ago. Still, it's surprising to me that underwriters turn a "blind eye" to sham joint ventures during agency audits. Let's hope that underwriters are held as culpable as their agents during the criminal investigations and class action suits that most certainly will occur. I've lost much of the confidence that I once had in underwriters in the aftermath of the Washington state investigation. I think it's safe to assume that the illegal marketing activities revealed in Washington pervade the entire nation.
At the end of the day, I believe that it's the "educated" consumer that will determine the fate of the title agent. I use the word "educated" to refer to a consumer who is aware of the negative factors confronting them in a real estate transaction. I happen to believe that a fully aware consumer would chose to close with a title company like yours and not as part of a confusing bundle of services.
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