July 28, 2003
HUD SETTLES FOUR CASES INVOLVING ALLEGED VIOLATIONS OF REAL ESTATE SETTLEMENT PROCEDURES ACT
Settlements signal continued HUD enforcement
WASHINGTON - The Department of Housing and Urban Development today announced four settlement agreements involving alleged violations of the Real Estate Settlement Procedures Act (RESPA). The cases involve a wide variety of business practices that violate RESPA's anti-kickback and unearned fees provisions. Kickbacks, referral fees and other unearned charges can unnecessarily drive up the costs consumers pay when buying or refinancing a home.
Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.
"The message we hope to send today is clear," said John C. Weicher, HUD Assistant Secretary for Housing - Federal Housing Commissioner. "Business practices that are intended to skirt the anti-kickback provisions of RESPA will not be tolerated."Sham Business Arrangements
HUD determined that TitleVentures.com, a title insurance agency located in Kingsport, Tennessee, established dozens of sham title insurance companies for the purpose of paying kickbacks to real estate and mortgage brokers in five states for the referral of title business. As principal owner of TitleVentures.com, Jerry D. Holmes, Jr. joined with real estate and mortgage brokers to establish sham title companies in North Carolina, South Carolina, Tennessee, Georgia and Ohio. As part of the settlement, Holmes agreed to pay $7,500 to the U.S. Treasury and to cease using fictional agencies as a vehicle for facilitating referrals from real estate and mortgage brokers.
The bogus title companies in this case had few or no employees, no office space, and did little or no title work, while collecting 80 percent of title insurance premiums paid by borrowers. Under the settlement agreement, Holmes will shut down 36 affiliated title companies established with real estate and mortgage brokers. Holmes further agreed that all title agencies through which he conducts future business will have sufficient capital, be independent, be staffed by qualified employees, will perform core title work, and will obtain at least 40 percent of gross revenues from independent sources.
Free Virtual Home Tours
Real estate agents for two companies, Coldwell Banker United and Coldwell Banker Richard Smith Realtors, accepted free internet-based virtual home tours from title companies in the Austin, Texas area. HUD alleged that the real estate agents accepted virtual tours in exchange for the referral of business, in violation of Section 8(a) of RESPA. In two separate settlement agreements, the brokers agreed to stop the practice and to notify their agents in writing that accepting virtual tours at a discount or for no cost violates RESPA. Combined, they agreed to make payments to the U.S. Treasury totaling $19,200.
Virtual tours are a popular tool to help real estate agents market homes to prospective buyers. A virtual tour allows a person to view the interior and exterior of a home without ever having to actually visit the property.
Last year, HUD settled with the seven Austin-area title companies that provided these free virtual tours as an incentive to refer business. The companies agreed that if they provide virtual tours in the future, they would charge a fee that, at a minimum, represents their actual cost. In addition, the title companies agreed to pay more than $130,000 in settlement payments and will alert real estate agents and brokers that these virtual tours come with no expectation of potential business.
On-line Loan Applications
World Savings Bank, a large California-based lender with operations nationwide, paid up to $100 to real estate agents for filling out and submitting on-line loan applications for prospective borrowers. HUD has long considered that a real estate agent may not be compensated for merely filling out a loan application. This compensation may even be considered a fee for the referral of business in violation of Section 8(a) of RESPA. World Savings agreed to discontinue the program and made payment of $7557 to the U.S. Treasury.
Based on HUD's Homebuyer Bill of Rights, Secretary Mel Martinez last year proposed a sweeping reform of RESPA's regulatory requirements in an effort to greatly simplify and clarify the homebuying process for consumers.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet.