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The $6.4 Million Dollar Question
by Robert Franco | 2007/11/30 |

The Department of Housing and Urban Development (HUD) has reached an agreement with six home builders and First American under which the companies agreed to pay $6.4 million but deny that they committed any illegal acts. Typical HUD settlement. First American also agreed to shut down 84 "affiliated partnerships" formed in Florida with real estate brokers, mortgage brokers, banks and home builders.

According to an article on

Officials said they existed primarily to steer lucrative title insurance business to First American, which split consumers' insurance premiums with participating partners.

In effect, according to the investigators, home builders, lenders and real estate firms could pocket part of buyers' closing costs without customers' knowledge. On paper, the partnership affiliates appeared to be ordinary title agencies, carrying names such as Security First Title, USA Title Partners, Discount Title Services and the like.

But investigators from the federal Department of Housing and Urban Development (HUD) and Florida insurance regulatory agencies found "all regular title services required to effect title insurance were performed by First American, not the limited partnership agency," which was essentially a shell entity constructed "to compensate (participants) for the referral of the business."

These types of settlements are usually covered in the press from the homeowner's perspective. They explain how consumers may be paying more for their settlement services because the party they trust to direct the settlement services is actually getting paid by the underwriter. Consumers, though receiving disclosures, do not understand the full implications of the "affiliated arrangement" so they tend not to shop around for a better deal.

But, why don't we look at it from another perspective - the local independent title agent's point of view. Thus, the $6.4 million dollar question is - How do these "affiliated partnerships" affect the local independent title agent?

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Direct competition with their underwriters is nothing new for the agents. In many markets the underwriters have maintained direct operations that compete directly with their independent agents - it was just an accepted business practice. But, when the underwriter creates "affiliated partnerships" and compensates the referrer for directing business to the new entity the competition is no longer "fair competition."

We all accept the fact that when an underwriter signs an agent, there is nothing prohibiting them from signing another agent in the same market, or setting up a competing direct operation. If they are all playing by the same rules, this additional competition can actually be healthy for the market. But, when they come in and set up an "affiliated partnership," especially one recognized by HUD as a "sham," they aren't playing by the rules. They are violating RESPA to develop more "captive business" - business that is kept from their own agents.

Doesn't the underwriter owe some duty of loyalty to their independent agents? Perhaps not a duty that would prohibit direct competition, but shouldn't the competition at least be fair? When they decide to set up sham affiliated partnerships, they are causing harm to their own agents. They are taking away business opportunities that were the very purpose of establishing the agency relationship.

Once again... I'm thinking "ethically challenged."

Robert A. Franco


Categories: Competition, Ethics, RESPA, Small Agents

808 words | 2606 views | 5 comments | log in or register to post a comment

Here's something that has been both...
Here's something that has been bothering me for a while. The title underwriters who sell searches to their "agents" INSIST upon delivering the product in title COMMITMENT form.

This REALLY bugs me because title "agents" are supposed to provide certain core services which include examination of title including the review of the abstract and preparation of the title commitment.

I have used FATIC's Fast Web system. We tried it for a while to see if we liked electronic delivery.

We order searches in some counties through LTIC because we don't have an abstractor there that we know and love.

I have seen a demonstration of Next Ace.

In ALL three products, the end product is delivered as a seemingly no brainer title commitment which in the hands of a crappy ass title agent or an unexperienced sham operator equals easy money.

My staff and I toss the title commitment and glean what we can as search material from the product, call for more, then make our own decisions about insurability which were OFTEN different that the FATIC conclusions - ususally the same as LTIC and we've never used Next Ace.

The point is that we are providing the core services we are being paid to perform. We are legitimate.

I don't know if it should be the function of regulators to tell underwriters to cease and desist providing complete title commitments to agents or not, but underwriters should be astute enough themselves to read the laws and discern the implications of their procedures.
by Diane Cipa | 2007/12/01 | log in or register to post a reply

I couldn't agree with you more, Rob...
I couldn't agree with you more, Robert. Around here, the sham ABA can be more lucrative for the underwriter than the traditional agency relationship. Rather than just accepting a cut of the premium, the underwriter sells the "agent" a title search and provides all of the closing services. So, that seems to be their main focus in their marketing.

Diane: In Illinois, the Dept. of Financial and Professional Regulation has issued memos to the industry participants. The memos clearly state that the agent must not receive a title search in commitment form, but must create the commitment from its own examination of the raw data. I am not aware of any cease and desist orders specific to any "agent" or underwriter (altough I have not checked their website lately).

The IDFPR also frowns upon title companies' allowing mortgage brokers to close the loans they originate. A "title agent" in Illinois is authorized to do so. In today's environment, insurance departments in all states that allow this type of arrangement would do well to further scrutinize the practices relating to broker-owned "title agents".
by Pat Scott | 2007/12/01 | log in or register to post a reply

Here's my worry. Bust up the ABA's...
Here's my worry. Bust up the ABA's which do seem to increase costs to the consumer, I agree. But, doesn't this just give control of the entire title market to Fidelity?

Aren't they the ones pushing the break ups the hardest and screaming RESPA the loudest?
by Steve Dalton | 2007/12/02 | log in or register to post a reply

Fidelity and First American at in a...
Fidelity and First American at in a titanic fight to take over the world but though the demise of ABAs would rock both of their worlds just a little, they've both got too much going on to care. Frankly, they both are salivating over real estate sales now. I think they figure they can capture the consumer on the "web" then offer some direct automated crappo coverage combined with an online sales agreement. Click "I agree" and presto, you're a homeowner.

Anti-trust - where ar eyou?
by Diane Cipa | 2007/12/02 | log in or register to post a reply

Steve: I don't see how eliminating...
Steve: I don't see how eliminating AfBAs would result in a special advantage to any underwriter. Without them, they would all be competing in the traditional manner. It would most certainly be HUGE benefit to the independent agents who are struggling to compete with sham AfBAs. 
by Robert Franco | 2007/12/03 | log in or register to post a reply
Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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