HUD No. 07-170
November 16, 2007
HUD AND STATE OF FLORIDA SETTLE CASE AGAINST FIRST AMERICAN TITLE CO. IN ALLEGED KICKBACK SCHEME
First American to shut down 84 limited partnerships in Florida and will pay $5 million
WASHINGTON - The U.S. Department of Housing and Urban Development and two Florida regulators today announced a legal settlement with First American Title Insurance Company for alleged violations of the Real Estate Settlement Procedures Act (RESPA) and similar state laws. HUD, the Florida Department of Financial Services (DFS), and the Florida Office of Insurance Regulation (OIR) claim First American made payments to scores of affiliated partnerships based on the referral of business to the title company.
Under the terms of the settlement agreement announced today, First American will shut down 84 partnerships and pay $5 million to the U.S. government and the State of Florida.
"Closing 84 affiliated partnerships and negotiating this significant monetary settlement is an outstanding example of ongoing cooperation between state regulators and HUD to enforce RESPA," said Brian Montgomery, HUD's Assistant Secretary for Housing and FHA Commissioner. "Our joint investigation found these partnerships were created to generate referrals in violation of RESPA and HUD's policies against sham affiliated business arrangements."
The investigation found that over a number of years, First American formed or acquired limited partnerships in the State of Florida to act as title insurance agencies. While these partnerships were created as title insurance agencies, the joint investigation concluded that all regular title services were performed by First American. HUD, DFS and OIR claim the partnerships acted only as "pass throughs" to pay real estate agents, mortgage brokers, builders and other limited partners for referring business to First American.
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.
First American further agreed that any future affiliated title company operating in Florida will:
- Employ individuals who are licensed and experienced in the title industry and will provide core title services through its own employees;
- Have operating capital and net worth comparable to independent title agencies in the market area in which it operates;
- Hire employees who will work exclusively for it and who will not be compensated, employed or managed by any affiliated real estate agent, mortgage broker, title insurance company or homebuilder;
- Actively compete in the marketplace for title insurance business and actively market its services and seek title business from persons other than the agency's owners and persons associated with First American, and;
- Comply with RESPA, HUD policy statements, and relevant state law.
To read the settlement agreement announced today, visit HUD's website.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet and espanol.hud.gov.