New RESPA rule & The trouble with Controlled Business Arrangements

In a recent case involving a title company in Columbia and a large real estate firm, there were allegations that the title company had a “Marketing Agreement” wherein the title company made monthly payments to the realtor in order to obtain referrals for settlements from the realtor. The Real Estate Settlement Procedures Act of 1974 (RESPA) was designed to prohibit such activity and was purported to prevent realtors or builders from receiving “kickbacks” from title companies in exchange for closings.

The most recent rule change to RESPA  made obtaining mortgage financing clearer and, ultimately, cheaper for consumers. The new Rule includes a required, standardized Good Faith Estimate (GFE) to facilitate shopping among settlement service providers and to improve disclosure of settlement costs and interest rate related terms. The HUD-1 was improved to help consumers determine if their actual closing costs were within established tolerance requirements.

Unfortunately, in 1992 when Congress got around to approving some of the regulatory language for RESPA, it opened up the possibility of Controlled Business Arrangements or CBAs wherein the title company and/or the realtor lender or builder co-owned a title entity which performed settlements and both parties profited. There have been many permutations and combinations since then designed to foster the possibility of the realtor, lender or builder receiving compensation for the referral of settlement business. Unless the arrangement meets the criteria set forth in RESPA, the CBA could be considered a violation of the federal law initially written to prevent such arrangements. The allegations in the aforementioned case are that the arrangement did not meet the criteria of RESPA.

The unfortunate part is the consumer may pay higher settlement fees in order to “build in” the referral fee being paid to the referring party. Colony Title does not participate in any marketing agreements or referral fee structures. We are very proud of the fact that realtors and lenders who refer work to us do so because of our work product, not because we are paying for that referral. If you enter into a contract wherein the realtor, lender or builder discloses a CBA or marketing arrangement be advised that the party handling closing may not have your best interests at heart.

Rates unbelievably have been a lot better these past few weeks. A fixed 30 year is 3.5%, FHA is at 3.25% with significant lender help and 15 year fixed is under 3. It’s not known when these rates will turn up, but now is the time to act. We work hard to be your Title Company and real estate law firm. If you have a question call Colony Title at 410 884 1160 or email us at tee.tillman@colonytitle.com

We are once again having the Colony Title Invitational Tennis Tournament to benefit University of Maryland Shock Trauma, June 6th at Hobbits Glen Racquet Club. Call or email for details.

About Colony Title Associates:

Founded in 1995, Colony Title Group handles in excess of 2000 real estate closings per year in the central Maryland area. The founder Tee Tillman has over 23 years of experience in the title and real estate law fields. Colony handles closings for several lenders, including banks, credit unions and mortgage brokers. Colony is the preferred choice for many real estate brokers in the area.

You can also follow Colony Title on Facebook, , Twitter,  and LinkedIn.

Source: RESPA – Real Estate Settlement Procedures Act, U.S. Department of Housing and Urban Development

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