Yesterday morning, the Fort Myers Florida News Press published the sad story of the Barnhart family-- husband, wife, two young daughters with a third child on the way-- who had bought what they thought was their dream home in Cape Coral last November. In the ensuing months, the Barnharts made $80,000 in improvements to the home. Unfortunately, they've now become yet another victim of sloppy foreclosure work. Somehow, the bank that sold them the house, Wells Fargo, didn't even own the house when they sold it to them. As it stands now, the legal title to the house is held by the former owner, Richard Riccobono.
How could a bank sell a home it didn't own?
Wells Fargo, via the servicer of the loan, American Home Mortgage Servicing, and a Florida foreclosure mill, Ben Ezra & Katz, received a foreclosure judgment on the property in late 2008 and took possession of the property. But then, for unknown reasons, perhaps related to the "technical paperwork issues" Ben Ezra & Katz was having at the time, it asked a judge to vacate the foreclosure in August 2009. The judge granted the request, and a document to that effect was filed in the public record. (Ben Ezra & Katz was later sanctioned by the courts, was fired by its biggest client, Fannie Mae, and exited the foreclosure business earlier this year.)
American Home Mortgage Servicing proceeded to attempt to sell the property, apparently unaware of the fact that the foreclosure had been nullified and its client no longer owned the property. The discrepancy should have been picked up in a title search, but somehow, American Home Mortgage or its title agent, PowerLink Settlement Services, missed that 2009 court order, and the property was sold to the Barnharts as if the foreclosure still stood. It is not clear from the story whether the Barnharts obtained an owner's title policy from PowerLink.
As it turns out, there appears to be more than just a normal business relationship between American Home Mortgage and PowerLink Settlement Services. PowerLink appears to be a controlled business arrangement, jointly owned and/or controlled by American Home Mortgage and ServiceLink, a division of Fidelity National Financial that provides lender services, including title services.
Critics have long claimed that this type of title controlled business arrangement is merely a conduit through which the referrer of business in the relationship receives unearned income-- the functional equivalent of kickbacks, which are outlawed under the Real Estate Settlement Procedures Act. Some of these critics have maintained that controlled business arrangements endanger the quality of title work via misplaced incentives and conflicts of interest not present in independent title businesses. Opponents of controlled business arrangements attempted to have them altogether banned in the late 1970s and early 1980s, but that attempt failed, and instead controlled businesses were legalized subject to certain conditions in 1983 via an amendment to RESPA.
One of the conditions for a legal controlled business arrangement,
as clarified by HUD in a 1996 policy enforcement statement, is that the jointly created entities must not be "shell entities or sham arrangements that are not a bona fide provider of settlement services." In clarifying the distinction between bona fide providers of settlement service providers and shams, HUD further stated:
"In many of the arrangements that have come to HUD's attention, the substantial functions of the settlement service business that the new arrangement purports to provide are actually provided by a pre-existing entity that otherwise could have received referrals of business directly. In such arrangements the entity actually performing the settlement services reduces its profit margin and shares its profits with the referring participant in the arrangement."
This would seem to closely describe the arrangement between American Home Mortgage and ServiceLink. The settlement service business provided by PowerLink could seemingly be provided by the parent company ServiceLink. On inspection of the companies product offerings and facilities, it appears that ServiceLink is fully capable of accepting the referrals directly from American Home Mortgage, doing the settlement service work itself, and accepting the full measure of profits, but instead it went to the trouble of creating a separate entity in return for the privilege of having to split the profits-- a red flag for an illegal, "sham" controlled business.
Another prong of the test is whether the controlled business "manages its own business affairs." The domain name of PowerLink's website, powerlinkss.com, is registered to ServiceLink. The address of the registrant and the administrative and technical contact of the domain name is ServiceLink's Pittsburgh Operations office at 4000 Industrial Blvd. in Aliquippa, PA. The IP Address and name servers used to host the website are registered to ServiceLink. One page of the web site even lists "ServiceLink" instead of "PowerLink" in the title.
Yet another prong of the test involves whether the the company is "actively competing in the market place for business." It appears that little marketing effort has gone into PowerLink's public facing web site. The language of PowerLink's rudimentary web site is largely lifted from ServiceLink's web site. For example, language on the home page of PowerLink's site:
Welcome to Powerlink Settlement Services, LP, the preferred source for your title, closing and valuation needs. Operating in all 50 states, PowerLink combines the industry's best people with the products, processes and technology to reduce operating costs, maximize loan value, build customer confidence, and drive performance through the life of the loan.
http://www.powerlinkss.com/
...seems to be little more than a cut and paste of language on ServiceLink's home page:
Our Serve First culture combines the industry's best people with the products, processes and technology to reduce operating costs, maximize loan value, build customer confidence, mitigate risk, and drive performance through the life of the loan.
http://www.servicelinkfnf.com
Each description of a title product offering on the PowerLink site appears to have been similarly copied and pasted from the ServiceLink site, with only slight modifications. A couple examples follow:
Owner & Encumbrance / Property Report
PowerLink provides uninsured (non-ALTA) searches required for origination and default transactions. We leverage our industry leading technology and our relationship with our nationwide vendor base to support our delivery of the current 1 owner and 2 owner search data needed to ensure a quality title product.
http://www.powerlinkss.com/...
Owner & Encumbrance / Property Report
ServiceLink provides uninsured (non-ALTA) searches required for default and REO transactions. We leverage our industry-leading technology and our relationship with the Fidelity National Financial family to support our delivery of the current owner data needed.
http://www.servicelinkfnf.com/...
Default and Origination Title Insurance
PowerLink is a single-source for all of your ALTA Title Insurance needs. We are positioned as a licensed agency in 33 states and partner with additional providers in the remaining states, allowing us to deliver national coverage for ALTA Title Insurance.
http://www.powerlinkss.com/...
Default Title Insurance
ServiceLink is a single-source for all of your ALTA title insurance needs. We are uniquely positioned as an underwriter for all Fidelity National Financial brands allowing us to deliver national coverage for ATLA title insurance.
http://www.servicelinkfnf.com/...
In fact, virtually none of the text on the PowerLink website appears to be original... most of the language on the very sparse web site can be directly traced to the much more robust and businesslike ServiceLink web site, which has much more information for a potential client-- product descriptions are fleshed out, brochures are available for download, and so forth. ServiceLink also offers a much wider range of services than PowerLink, according to respective web sites.
Despite the fact that PowerLink's status as a standalone business is questionable, none of these facts means that PowerLink is necessarily in danger of a ruling that it is a sham. According to HUD, no single prong of its test is determinative that a company is indeed an illegal sham controlled business arrangement. Moreover, HUD's 10 prong sham test has recently been ruled to be "unconstitutionally vague" by one federal judge.
Nevertheless, PowerLink's circumstances give rise to a number of questions regarding its legitimacy. Why would ServiceLink create a new and separate entity with a stripped down service offering that is a near exact copy of a subset of ServiceLink's own offerings, marketing materials which are near copies of ServiceLink's own, except without any detail or care, and an office on the fourth floor at ServiceLink's address, forcing every visitor to PowerLink's office to pass directly by a ServiceLink sign? Is PowerLink's seemingly minimal marketing presence a reflection of the fact that it is really not intended to compete in the marketplace for new business? If PowerLink actively competed in the marketplace for new clients, wouldn't it be directly competing with ServiceLink, given that PowerLink's product offerings are nearly identical to service offerings provided by ServiceLink? Why would ServiceLink want PowerLink to actively compete for clients-- wouldn't it make more money if it competed for new clients under the ServiceLink brand? Why would a client other than American Home Mortgage choose PowerLink over ServiceLink? What is the advantage to ServiceLink of sharing the fruits of this business with American Home Mortgage, other than referrals? What has American Home Mortgage added to this business, other than referrals? What is the business purpose of PowerLink?
If PowerLink exists solely to capture American Home Mortgage's referrals of business, it would tend to explain the fact that the company does not appear to have administrative control over its own domain name, for example, and the fact that it's web presence is thin and unoriginal. It would also tend to argue that the company merits further inquiry as to whether it is a bona fide provider of settlement services or merely a sham controlled business arrangement.
Note: I made two phone calls to the number listed on PowerLink's web site, attempting to get answers to some of my questions about PowerLink. The first call was answered by a receptionist, and, after I explained who I was and the purpose of my phone call, I was transferred though to a pleasant individual who identified himself as being in "client support." The individual quickly determined that he was not authorized to answer my questions about the company, but could not find a superior or anyone else who could speak to my questions about the company or about the Barnhart's situation. When I suggested that if his superiors were unable to help me, their marketing department might be able to answer some of my questions, he said that he did not know who to put me in touch with that would handle marketing for the company. He said that he would have a superior call me back. After several hours with no return call, I called again, and got PowerLink's general voice mail box.
Some footnotes:
ServiceLink had a connection to another business, Inzura Settlement Services, that was found to be an illegal controlled business arrangement under Kansas law and had its license revoked by the Kansas Insurance Department in 2008. The Insurance Department found that 100% of Inzura's business was referred from one of its controlling partners, Accredited Home Lenders, a formerly large but now defunct lender which specialized in non-prime mortgages. The settlement service partner in the Inzura venture was ATM Corporation of America, which was purchased by ServiceLink in 2007. Inzura's legal address was the 4th floor of 345 Rouser Road in Coraopolis, PA-- PowerLink's current address. Not surprisingly, Inzura did not survive when Accredited Home Mortgage shut down.
I also found evidence of some other ServiceLink controlled business arrangements that may also be structured to simply handle the business of one major client. For example, ServiceLink seems to have set up a business entity, National Link, www.nationallinklp.com, which seems to exist to service the business of National City Bank, now part of PNC Bank.