I have been reading for some months now some of the comments that have been to submitted to HUD at www.regulations.gov as they relate to the Real Estate Settlement Procedures Act (RESPA): Strengthening and Clarifying RESPA's "Required Use" Prohibition. (Docket No. FR-5352-A-01).
As a proud member of The National Association of Independent Land Title Agents I have been very outspoken about my opinion of Affiliated Business Arrangements (ABA's) and Controlled Business Arrangements (CBA's). I firmly believe that steering consumers into using affiliates for bundled services in their real estate transactions is detreimental to consumers and to the title industry as a whole.
For years now the use of ABA's and CBA's have become almost standard in more than half of all real estate transactions. The use of these ABA's and CBA's have resulted in a wealth of title claims being filed by and on behalf of consumers who were "steered" into the use of an affiliate title agency. Many believe that by providing the consumer with ONE STOP SHOPPING they are providing their client, the consumer, with convenience, cheaper fees, and increased efficiency. In fact, while trolling through the more than 1000 comments made on HUD's web-site, I came across a submission from Vicki Cox Golder, CRB, President, National Association of Realtors. In Ms. Cox-Golder's 2 page letter she states that in 2008, NAR contracted with Harris Interactive to guage consumer sentiment on one stop shopping. She goes on to state that the poll results were as follows:
- The biggest perceived advantages are: saving money because of discounted prices (77%), increased efficiency and manageability (74%), convenience (73%) and things not falling through the cracks (73%).
- The biggest perceived disadvantages are that consumers can't compare rates across different providers (15%) and that one company is responsible for all aspects of the process (13%).
Ms. Cox-Golder further states in her letter that the new HUD-1 and the new GFE allow consumers the necessary tools to allow them to shop for services and to make comparisons. I would beg to differ with that assessement, particularly as it relates to fees for title services. A review of the new HUD-1 and the new rules associated therewith will reveal to you that title agents are REQUIRED to bundle their fees. In fact the only fee that we can show as a seperate line item is the cost of the required lender's title insurance policy, which fee, I will remind you, is dictated by the State Insurance Commission based on rates filed by the various title insurance underwriters. The consumer under the new GFE and HUD-1 rules is not handed a document which allows them to compare an "apple with an apple" but rather is more equivilent to the comparison between an "apple and an orange".
My interpretation of Ms Cox-Golder's letter is that the position that has been taken by NAR seems to be, leave it alone. Let us continue to do whatever we can to insure that the consumer is using bundled services in their real estate transactions.
In further searching the comments, I came then upon a comment issued by The National Association of Independent Land Title Agents. In the comments offered in their 12 page letter you will find reference to the study done by the NAR in 2008. This letter specifically lays out the questions that were asked in the poll and clearly shows that the poll questions were designed in such a way as to have the answers given by the respondents support the desired result of the survey data.
The NAILTA letter goes on to state, correctly, that "with the help of massive lobbying efforts on the part of banks, mortgage companies, home builders and real estate companies, the title insurance industry has been collectively overrun by its referral sources.
In the same time period that referral source infiltration has blossemed, claims have dramatically increased. Further, historic ways in which title searches have been performed have degraded in order to accomodate the hastened approach to real estate closings preferred by these referral sources. Current owner searches (not 60 year searches on purchase transactions), title insurance without benefit of title searches and risky off shore title searches have been embraced to the detriment of both the homeowners and the insureds."
The blatent conflicts of interest that are inherent in these "one stop" shops has not been properly addressed by anyone in the real estate industry. The problem with CBA's and ABA's is that they allow for ACTUAL CONFLICTS OF INTEREST between the title insurance industry and the referral source. Since the borrower has no way in which to WAIVE the conflict (as would be required if your attorney had a conflict of interest) IT is not only unethical, but it is potentially illegal. The use of disclosures buried in a stack of paper presented to the consumer at the time of execution of the contract of sale is NOT SUFFICIENT to enable to consumer to understand the possible HARM they can suffer as a result of the fact that there is no independent oversight in their settlement transaction.
The independEnt title agent is the consumers best defense against fraud, kickbacks, and undue influence directed toward "one stop" shops to push a deal through to closing no matter what the status of the title is and no matter what the consequences to the consumer in the future should a title claim become necessary.
How well do you think you are serving your client by insisting on the use of an ABA or a CBA? Are you really serving your client at all, or are you making sure that you get:
- a higher commission split from your broker by using his/her ABA or CBA title vendor
- more referrals
- a portion of your E & O being paid for by your broker
- Any other "thing of value" that may have been negoiated as a result of your use of the ABA or CBA title vendor
The real estate industry is the only industry that allows "kick-backs" as a means of business. You can call these kick backs anything that you want to call them, but they are what they are. Doctors and lawyers may not accept money or things of value in order to influence their professional judgment. Your title agent should be held to the same professional standard as other professionals you would engage to protect your interest.
Title agents should be the neutral third party when determining whether or not matters affecting title will determine whether or not to proceed to closing rather than whether they will continue to get referrals from their affiliate lender, builder or Realtor. Their professional judgment should not be clouded by the fear that if they hold up a closing due to a title problem, because they are members of an ABA or a CBA, that they will suffer a monetary loss in the form of less referrals.
Charlene Perry
The Preferred Title Group, Inc.
DOING GOOD DEEDS EVERY DAY
