Rebate schemes subject to RESPA scrutiny

Sometimes you just can't predict human nature.

My article on the "rebate" scheme that's going on through Fidelity’s TransactionPoint drew lots of comments. But here's the shocker: Many of these industry professionals seemed more upset over not being invited to participate in this scheme than the fact that this latest kickback arrangement is being looked at as a RESPA violation! Go figure.

Make no mistake - this investigation is deadly serious. In fact, it will likely result in all "reimbursements" being forfeited, along with hefty fines and lots of bad publicity about the offending brokerages. I can only conclude that there's a general lack of knowledge about how these investigations work. The prevailing attitude is that HUD cannot possibly have the time or personnel to investigate every brokerage in the state of California for RESPA violations regarding kickbacks.

That would be correct if this was how the investigations work. But they don't work that way.

Here's the way it really goes: Investigators visit the handful of settlement service providers that participate in these “reimbursement” schemes, then they go through their records to make a list of every brokerage that has received payments from these providers. Presto! HUD now has a list of all the brokerages that have participated in the scheme. Then they can go directly to the offending brokerages and spend months combing through all their records.

Needless to say, this process is unsettling. No one enjoys having every aspect of their business scrutinized by a government agency.

So those of you who haven't tapped into this kind of kickback arrangement should feel lucky. You won't have to give up your reimbursements, pay significant penalties and fork over hefty attorney fees. Perhaps most importantly, you won't be held up in the media as yet another example of a real estate company that's operating outside of acceptable practices.

Stay tuned for my next article which will discuss the options you may have if you are unfortunate enough to be involved in one of these schemes.

AB 957 signed into law

Well, Assembly Bill 957 was long in coming, but it finally crossed the finish line!

The measure is designed to protect buyers of bank-owned properties from being locked into using a specific title company, escrow settlement or other real estate service provider.

I came across this welcome news today:

(Sacramento, CA) - The Escrow Institute of California announced today that Governor Schwarzenegger signed Assembly Bill 957 into law. This bill, authored by Assembly Member Cathleen Galgiani, D-Tracy, protects consumers by ensuring that they have the right to choose their own real estate service providers when purchasing foreclosed properties.

AB 957, known as the Buyer's Choice Act, prohibits sellers of so-called REO properties - typically foreclosed properties owned by banks - from requiring the buyer to use a particular title or escrow company. This unethical, anti-competitive practice drives up costs for homebuyers and takes business away from locally owned companies.

The problem has become particularly acute in the Central Valley and Inland Empire, areas that have faced some of the highest foreclosure rates in the country. Recent data indicate that 11 of the nation's top 20 foreclosure rates are in California metropolitan areas.

"Homebuyers should have every right to choose their title, escrow and real estate service providers based on price and quality of service," said Assembly Member Cathleen Galgiani. "AB 957 ensures that buyers can make marketplace choices that suit their own best interests, rather than getting forced to serve the financial interests of some international bank or other corporation."

The Buyer's Choice Act enjoyed overwhelming, bipartisan support in the Legislature, with state Sen. Jeff Denham, R-Merced, providing important assistance. AB 957 was sponsored by the Escrow Institute of California, and received support from the California Association of Realtors and numerous real estate professionals from across the state.

The bill requires that REO sellers provide a disclosure notice to buyers informing them of their rights to choose their own title or escrow services. Sellers who violate the provisions of AB 957 are subject to enforcement action by state regulators and liable to buyers for civil penalties.

"It's just not right that independent escrow companies and other local real estate businesses are being literally locked out of the foreclosure sales market," said Escrow Institute of California CEO Tim Egan. "These local companies oftentimes offer the best price and highest quality of service available to consumers. Excluding these companies from REO sales kills local jobs and eliminates competition in the marketplace."

For additional information regarding AB 957, please visit http://www.escrowinstitute.org/.

Feedback comes in on Fidelity

Some comments have come in regarding my post about Fidelity's TransactionPoint unit facilitating “reimbursements” to brokers that order its affiliated services . Here are a few of the comments:

Hi,
I use transaction point, but I don't know of any reimbursements.I paid several thousand dollars for the system and setup and I pay $10 per transaction input. I haven't heard of any way to get money back.
Judith Brooks

***************************************

I have never heard of this but thank you
Sent from my Verizon Wireless BlackBerry

****************************************

I have worked with Fidelity for years and do not and have heard or experienced such activities.
Dawn August
Broker

***************************************

Thanks for the update, looking forward to your followup.
David Castro

Is Fidelity's TransactionPoint facilitating “reimbursements” to brokers from afilliated services?

I recently came across a new twist – but the song sure sounds the same.


Get this: Fidelity’s TransactionPoint unit is facilitating “reimbursements” to brokers that order its affiliated services and in some cases, for other providers who are participating in the same business strategy. It’s my understanding that HUD’s RESPA unit is evaluating complaints regarding this strategy. But any way you look at it, it’s the same old song — brokers are getting a payback for using chosen affiliated services.


RESPA OBSERVER is investigating what appears to be yet another tool to pay brokers for their participation in a scheme to funnel business to Fidelity’s TransactionPoint affiliated services.


Most brokers – to their credit - are wisely refusing to enter into this relationship, which involves a payback of what appears to start at around $20 per transaction and goes upwards of hundreds of dollars per transaction for clearly defined RESPA-protected settlement services.


Since we in the industry tend to have short-term memory loss, I will remind you that in 2007 First American Title Insurance Co. agreed to settle allegations by the Minnesota Department of Commerce and HUD that it created 35 sham businesses designed to generate referrals from real estate agents and brokers in Minnesota.

While First American paid $500,000, “The First American action only dealt with one side of the Affiliated Business Arrangements relationship,” the commissioner of the Minnesota Dept. of Commerce Glenn Wilson said. “There will be actions taken on the other side,” against the referral partners (over 600 agents, brokers and develo pers.)

RESPA OBSERVER is identifying and confirming the names of the handful of brokers that agreed to participate in this illegal strategy, and we’ll be reporting on our findings in upcoming postings.

Stay tuned!

Update: Prudential’s Preferred Settlement Service Provider

A recent tip from a Prudential California Realty manager indicated that managers are being pressured to use only ONE natural hazard disclosure provider – DisclosureSource. While requesting the agents to patronize one provider of a settlement service is not that unusual for a real estate company, the requirement of the use of a settlement service, without the agent having a say in the selection, is unheard of and raises a number of troubling questions.

I decided to contact several more Prudential managers on a completely confidential basis and see if they could shed some light on what was going on.

One manager said:

"We had a preferred vendor, but anyone can use whoever they want," one manager said. "In theory, it's selected by the client."

Another manager had this to say:

"We can use anyone we want," he said. "If the buyer and seller agree on a company, they can use it. But every realty company has a preferred vendor. We may have a company we prefer to use, but we change all the time, based on insurance coverage."

What is missing from these responses and others I received is what role does the agent play in the selection of a disclosure report? From what we have heard the answer would be “very little.” Apparently Prudential expects their agents to set aside both their right and responsibility in the selection of a third-party disclosure report provider and blindly follow whatever Prudential corporate business arrangement that happens to come down the road.

I’ve been around real estate agents for a long time and, to put it mildly, they are an independent group. They tend to hang on to their circle of settlement service providers regardless of corporate mandates. This brings to mind the question, how do you effectively make a large group of agents automatically change allegiance from a company, that we understand, has been extremely popular with them for many years?

Something does not seem quite right. I will report back as this investigation continues.

Another possible RESPA violation?

Well, it looks like another California realty firm is forging exclusive — and highly questionable— business arrangements for settlement services, a move that appears to violate the Real Estate Settlement Procedures Act.

I just received a tip on this from a Prudential California Realty manager, who shall remain anonymous. If this is true, it’s not only an apparent RESPA violation, but a sad miscarriage of consumer trust. I’ll be investigating this issue further to see where it leads. I vow to keep the identities of all Prudential California Realty personnel confidential.

If you have information on this, contact me at mitch@respaobserver.com.

Latest Freddie Mac Attack! Secret Monopoly Formed with First American Title!

Ever since the U.S. government took over control of Freddie Mac after bailing them out with over $200 billion of taxpayer monies, you’d think this insidious publicly-traded company would start acting with some level of President Obama’s transparency! No such luck.

This company, which is a significant reason we are experiencing a mortgage crisis that is devastating the American way of life, has just made a secret and exclusive alliance with one of America’s most unscrupulous companies in the real estate industry -- First American Title, who is notorious for violating RESPA across the United States, and who has a public history of lawsuits from government agencies across the nation. This very same company has ensured that one of its divisions, FANHD, is now the exclusive provider of NHD reports for EVERY California Real Estate Owned (REO) property sold in the state.

Freddie Mac is engaging in cornering the California REO NHD market to the benefit of one company, First American Title’s FANHD. In fact, it refuses to sell any REO properties if the buyer will not bend to their stipulation to use only one selected company. WOW!!!

Talk about unfair competition!! This is nothing short of a monopoly for all their REO transactions. Did anyone at Freddie Mac think about the illegality of their actions, and the complete disregard for the principles of fair competition in their illicit arrangement?

Here are some basic irregularities to consider:

1. Natural Hazards Reports are required by law in California and considered by RESPA to be a settlement service. Thus, the referral of these services is no different than the referral of title reports, which is a violation of RESPA sections 8 and 9.

2. Freddie Mac is under government control and required to comply with fairness in its negotiations. Freddie Mac has not put this service to bid nor published an RFP.

3. Freddie Mac with this arrangement is denying free market competition among NHD report providers in the REO market, thus violating federal and California antitrust and unfair competition laws.

4. The arrangement may impose restraints on trade in violation of the Sherman Act and under the Cartwright Act.

5. More importantly, this is fundamentally wrong for the state of California. This arrangement is creating additional unemployment and eliminating competition in the NHD industry.

If you haven’t done so already - send a message to our government officials to stop these insider dealings and support “timely” competition and the American way of life before it is taken away from all of us.

The quest is not only to create jobs, but also to preserve them!

cc. Secretary of HUD
FHFA
GAO
Governor Arnold Schwarzenegger
Senator Feinstein
Senator Boxer
President Obama
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Stop Freddie Mac & First American’s ill-conceived Monopoly!

I have just learned about a very serious legal breach and threat to our California real estate industry. After you’ve read this, tell me and tell our government what you think!

Did you know that Freddie Mac now refuses to sell an REO property to any buyer in California unless that buyer only accepts a First American Title-produced Natural Hazards Disclosure report? No one else’s NHD report will be permitted. Can you believe that?

Tell President Obama and Governor Schwarzenegger to NOT let Freddie Mac shut down an entire industry!

Here’s the scoop - Freddie Mac and First American Natural Hazard Disclosures (FANHD) have made an exclusive agreement cutting out every other NHD company (Can you say anti-trust?) for all Freddie Mac California real estate-owned (REO) properties. Under this exclusive arrangement, Freddie Mac requires all buyers of REO properties to agree to the sole use of FANHD natural hazard disclosure (NHD) reports.

This deal was done, I believe, without even the public posting of a public request for proposal –- a standard by every government agency.

Why should you care? In California the ONLY protection an REO buyer has is the NHD –- no other disclosure is offered. And who certified First American Title’s report as the best NHD money can buy? Nobody, that’s who.

It’s time to raise your voice and question this highly questionable and all too insider friendly relationship!

And don’t just tell the folks at Freddie Mac and First American Title’s FANHD you don’t like insider double dealing – tell our elected officials and their staffs in Sacramento and Washington DC to do what is right -- to stop these “privileged” arrangements, to support “timely” competition and the way of America life before it is taken away from all of us.

The quest is not only to create jobs, but also to preserve them!

cc. Secretary of HUD
FHFA
GAO
Governor Arnold Schwarzenegger
Senator Feinstein
Senator Boxer
President Obama

White-labeling alive and well?

It seems that the practice of "white labeling" may still be alive and well at one Southland realty firm.


White labeling, for those of you who don't know, is when a title company wholesales its Natural Hazard Disclosure (NHD) reports or data at a discount to real estate brokerage firms. Then the brokerage firms slap their own name on the reports, often selling them at an inflated price to unsuspecting consumers.


The practice is both unethical in direct violation of the Real Estate Settlment Procedures Act, or RESPA. RESPA prohibits a brokerage firm from charging consumers a fee when the brokerage does not perform any actual services for that fee.


I touched on this subject a few weeks ago with Dave Coy, managing broker for Century 21 Lois Lauer Realty in Redlands.


"We don't produce our own reports anymore," Coy said. "We used to have a private-label arrangement, but now our agents use various companies, including Property ID, and I think Fidelity has a report that they produce."

Coy said Century 21 Lois Lauer used to use First American, but stopped because First American no longer produces private-label NHD reports for Lois Lauer.


I queried Lois Lauer agent Freda England about that this week, however, and the conversation went like this:

"Does your agency have its own Natural Hazard Disclosure reports?" I asked.


"Yes, we have our own," she said. "We use the one primarily, but if it's negotiated between a buyer and seller to use another company ... they can use another one."


Well, correct me if I'm wrong, but it sounds like Century 21 Lois Lauer is still affiliated primarily with one NHD provider. And I get the sense that the company's agents are strongly encouraged to defer to that provider.


Moreover, the services listed on the Century 21 Lois Lauer website includes "Century 21 Lois Lauer Realty Hazard Reports." Sounds like private-label to me.


I ran all of this by Coy again this week and he still maintains that his agency no longer has a private-label arangement for NHD reports. The practice, he said, had become a headache for all involved.


"First American was constantly being challenged for RESPA compliance, so they finally decided they were spending too much and it wasn't worth it," he said.

A big argument against the practice of white labeling is that consumers don't know where the reports are coming from - or if they're accurate and thorough, for that matter.


And there are issues of liability. If the brokerage is not the company that actually prepared the report, does the brokerage take legal responsibility for the report if it's incorrect? Does the errors and omissions insurance of the brokerage cover the consumer who received an incorrect report?

These are questions I hope Lois Lauer Realty customers never have to ask.

This is my last planned blog article for Century 21 Lois Lauer white labeling. However, if anyone has something more to add, please contact me. I will be happy to keep your name confidential.

RESPA changes fuel confusion

Want to see some confusion?

Try keeping up with all of the rules and regulations surrounding the Real Estate Settlement Procedures Act (RESPA). It's like trying to figure out the plot to"Lost." And believe me, I tried unraveling that TV series a long time ago, only to give up in frustration. I don't even think the writers know where it's going.

But I digress.

A new survey by QuestSoft, a California-based provider of mortgage compliance software and services for lenders, reveals that 74 percent of lenders think compliance issues surrounding changes to the Real Estate Settlement Procedures Act pose the greatest concern in 2009.

Specifically, they cited adjustments to fee accuracy rules in RESPA as a major concern for lending practices.

To halt kickbacks that typically boost the cost of settlement services, RESPA now requires lenders to supply complete disclosures to consumers during several stages of the transaction process. One the disclosures says the lenders have to provide borrowers with a Good Faith Estimate within three days of receiving an application.

That sounds reasonable. But now H.R. 1728 is muddying the waters. Approved by the House and recently sent to the Senate Committee on Banking, Housing, and Urban Affairs, this measure would supercede the current RESPA changes and force a rewrite to better complement the Federal Reserve’s Truth in Lending Act.

No wonder lenders are so confused!

I spoke recently to QuestSoft President Leonard Ryan and he said all of these new rules -and the potential overhaul that might occur with existing mandates - makes for a pretty confusing mess.

"The whole entire process of disclosure is inherently confusing to people," Ryan said. "All kinds of different paper gets dumped on consumers and they have a tendency to be overwhelmed by it. It's almost like a homeowners association sending you their CC&Rs."

Ryan said they ought to combine of all of those compliance mandates into one document that lenders and everyone else could understand.

"If you could put the Truth in Lending, the Good Faith Estimate and all of the other disclosures together it would make a lot more sense," he said. "But then you still have states going into what's right or what's wrong, and before long you get a tall stack of paper."

All of these issues certainly add to the confusion. But in California, things get doubly confusing because the Natural Hazard Disclosure Statement - the report that lets you know if the home you're buying is in an earthquake zone, high-fire area or is subject to other concerns - isn't even listed on HUD1, a document provided by the U.S. Department of Housing and Urban Development.

A legal action last year determined that NHDs in California are a settlement service as part of the escrow process and are subject to RESPA. But they're not listed, despite that the fact that scores of other settlement sevices are, including the loan origination fee, loan discount fee, appraisal fee, credit report, lender's inspection fee and the mortgage insurance application fee.

HUD isn't enforcing NHDs because the agency isn't making lenders, title companies, realty firms and buyers aware that Natural Hazard Disclosure Statements are required.

Lenders, Ryan said, need "easy-to-use programs and tools" to keep up with and comply with constantly changing regulations. I agree. And in California, they could start by making sure that everyone knows about NHDs.

So the next time you try to decipher the plot to "Lost" just remember - it's probably not as complicated or confusing as RESPA and HUD's enforcement of RESPA issues!

A good bill is rapidly eroding

Ever noticed how good ideas often get watered down to the point where they're no longer good ideas?

That's exactly what's happening with Assembly Bill 957, the "Buyers Choice Act," authored by Assemblywoman Cathleen Galgiani. The measure – which is still winding its way through the legislative process – was initially intended to allow buyers of bank-owned properties to use their own title and escrow companies, as opposed to banks dictating those choices for them.

That would have been good on two fronts: First, it would have benefited homebuyers, who often end up paying twice as much in escrow fees to big, out-of-town escrow companies who provide lousy service.

Secondly, it would have leveled the playing field by helping local title and escrow companies compete for business in the REO market. These smaller companies better understand the special needs associated with their specific areas. But they've been pushed out of the running because they can't compete with the iron-clad arrangements these BIG banks have with BIG title companies – arrangements that are forged through discounts and unfair business alliances.

They're monopolizing a big part of the market. Currently, 60 percent of the residential transactions that take place in California involve bank-owned properties. As a result, many of the smaller companies are going out of businesses.

It doesn't take a rocket scientist to see that this bill would be a good thing.

But it's already under attack, and the California Association of Realtors was among the first to weigh in. CAR wants to amend the measure because "it would have given too much control to one side of the transaction over the other." Well, correct me if I'm wrong, but isn't that exactly what's going on now? If big banks and big title companies have airtight agreements that completely keep smaller, independent companies from getting any of the REO business ... well, I'd say that's about as one-sided as it gets.

And think about this: The Real Estate Settlement Procedures Act (RESPA) prohibits a seller of residential property from requiring or influencing a buyer to purchase title insurance from a company chosen by the seller.

AB 957 is also opposed by two of the largest title companies. It's certainly easy to see why they're against it. After all, who'd want a little healthy competition when you can have the whole pie? These parties that oppose AB 957 have threatened to gain enough votes to kill it in order to serve their own interests. And that's exactly what might happen if we don't speak up.

The proposed amended language is as follows:
1103.21. (a) A seller shall not, directly or indirectly, as a condition of receiving offers or selling residential real property to a buyer, require the buyer to purchase title insurance, or escrow services, or a Natural Hazard Disclosure Statement in connection with the sale of that property from a company chosen by the seller.

So to Assemblywoman Galgiani I say this: Show some initiative and preserve the thrust of your bill – consumer protection. That's why you wrote it in the first place, isn't it?

Let's make this a true consumer-protection bill. Anything less would be a waste of time.

The bill is slated to go next to the Senate Banking and Finance Committee and the Senate Judiciary Committee. Following is a list of committee members names, districts, fax numbers and a suggested letter of support.

If you support the proposed amendment to this bill print the letter, sign your name and fax it to Assembly Member Galgiani and to the Senate member listed for your area:


Dear Assembly Member,

I am writing to express my support for AB 957 with the following proposed language included:

1103.21. (a) A seller shall not, directly or indirectly, as a condition of receiving offers or selling residential real property to a buyer, require the buyer to purchase title insurance, or escrow services, or a Natural Hazard Disclosure Statement in connection with the sale of that property from a company chosen by the seller.

I'm very afraid that the power of AB 957 is being severely threatened.

Wasn't this bill designed to stop organized banks and large title companies from monopolizing REO business through friendly kickbacks they give each other? Unless the bill is amended to include Natural Hazard Disclosures (NHD) and all settlement services, the controlled “affiliated” companies owned by the large title companies will control California's real estate business.

This new language has been proposed to include specific settlement services in AB 957. Your support of this amendment will ensure that large banks and large title companies cannot impose their own provider, and ensures that the provider is negotiable.

Please represent me in supporting this amendment.

Sincerely,

____________________________
(Signature)

____________________________
(Printed Name)

____________________________
(Street Address, City, State, Zip)

____________________________
(Phone Number)

Assembly Member Cathleen Galgiani, FAX 916-319-2117


Click on the link below for AB 957:
http://www.aroundthecapitol.com/Bills/AB_957/

Senate Judiciary Committee
Senator Ellen Corbett- Chair (D) State Capitol, Room 5108, Sacramento, CA, 95814. Fax: 916-327-2433. Counties: Portions of Alameda, portions of Santa Clara. Main Cities: Castro Valley, Fremont, Hayward, Milpitas, Newark, Pleasanton, San Jose, San Leandro, San Lorenzo, Union City.

Senator Tom Harman (R) State Capitol, Room 3070, Sacramento, CA, 95814. Fax: 916-445-9263. Counties: Portions of Orange. Main Cities: Costa Mesa, Cypress, Fountain Valley, Garden Grove, Huntington Beach, Irvine, Newport Beach, Westminster.

Senator Dean Florez (D) State Capitol, Room 313, Sacramento, CA, 95814. Fax: 916-327-5989. Counties: Portions of Fresno, portions of Kern, Kings, portions of Tulare. Main Cities: Bakersfield, Coalinga, Delano, Dinuba, Fresno, Hanford, Lemoore.

Senator Mark Leno (D) State Capitol, Room 4061, Sacramento, CA, 95814. Fax: 916-445-4722. Counties: Portions of Marin, portions of San Francisco, portions of Sonoma. Main Cities: San Francisco, Mill Valley, Novato, Petaluma, Rohnert Park, San Rafael.

Senator Mimi Walters (R)State Capitol, Room 3082, Sacramento, CA, 95814. Fax: 916-445-9754. Counties: Portions of Orange. Main Cities: Orange, portions of Fullerton, Laguna Niguel, Laguna Hills, Portions of Anaheim, Mission Viejo, Lake Forest, Tustin, Aliso Viejo, Rancho Santa Margarita, Irvine, Laguna Woods, Buena Park.

Senate Banking and Finance Committee
Senator Ron Calderon - Chair (D) State Capitol, Room 5066, Sacramento, CA, 95814. Fax: 916-327-8755. Counties: Portions of Los Angeles. Main Cities: Hacienda Heights, Huntington Park, La Mirada, Los Angeles, Montebello, Norwalk, Pico Rivera, Santa Fe Springs, South El Monte, South Gate, Whittier.

Senator Dave Cogdill - Vice Chair (R) State Capitol, Room 5097, Sacramento, CA, 95814. Fax: 916-327-3523. Counties: Portions of Fresno, portions of Madera, Mariposa, portions of San Joaquin, portions of Stanislaus, Tuolumne. Main Cities: Clovis, Fresno, Lodi, Madera, Stockton, Sonora.

Senator Lou Correa (D) State Capitol, Room 5052, Sacramento, CA, 95814. Fax: 916-323-2323. Counties: Portions of Orange. Main Cities: Anaheim, Buena Park, Fullerton, Garden Grove, Santa Ana, Stanton, Westminster.

Senator Dave Cox (R) State Capitol, Room 2068, Sacramento, CA, 95814. Fax: 916-324-2680. Counties: Alpine, Amador, Calaveras, El Dorado, Lassen, Modoc, Mono, portions of Nevada, portions of Placer, Plumas, Portions of Sacramento, Sierra. Main Cities: Auburn, Elk Grove, Fair Oaks, Folsom, Galt, Mammoth Lakes, Orangevale, Placerville, Rancho Cordova, Roseville, Sacramento, Shingle Springs, South Lake Tahoe, Susanville, Truckee, Valley Springs.

Senator Dean Florez (D) State Capitol, Room 313, Sacramento, CA, 95814. Fax: 916-327-5989. Counties: Portions of Fresno, portions of Kern, Kings, portions of Tulare. Main Cities: Bakersfield, Coalinga, Delano, Dinuba, Fresno, Hanford, Lemoore.

Senator Tom Harman (R) State Capitol, Room 3070, Sacramento, CA, 95814. Fax: 916-445-926. Counties: Portions of Orange. Main Cities: Costa Mesa, Cypress, Fountain Valley, Garden Grove, Huntington Beach, Irvine, Newport Beach, Westminster.

Senator Christine Kehoe (D) State Capitol, Room 5050, Sacramento, CA 95814. Fax: 916-327-2188. Counties: Portions of San DiegoMain Cities: San Diego, Del Mar, Lemon Grove.

Senator Carol Liu (D)State Capitol, Room 5061Sacramento, CA, 95814. Fax: 916-324-7543. Counties: Portions of Los Angeles. Main Cities: Altadena, Burbank, Glendale, Hollywood, La Canada Flintridge, Los Angeles, Pasadena, San Gabriel, Valley Village, Van Nuys.

Senator Alan Lowenthal (D) State Capitol, Room 2032, Sacramento, CA, 95814. Fax: 916-327-9113. Counties: Portions of Los Angeles. Main Cities: Artesia, Avalon, Bellflower, Cerritos, Downey, Hawaiian Gardens, Lakewood, Long Beach, Lynwood, Paramount, Signal Hill, Southgate, Florence-Graham, Willowbrook.

Senator Alex Padilla (D) State Capitol, Room 4038, Sacramento, CA, 95814. Fax: 916-324-6645. Counties: Portions of Los Angeles. Main Cities: Canoga Park, North Hills, North Hollywood, Northridge, Pacoima, San Fernando, Sun Valley, Sylmar, Van Nuys, Winnetka.

Senator George Runner (R) State Capitol, Room 4090, Sacramento, CA, 95814. Fax: 916-445-4662. Counties: Portions of Kern, portions of Los Angeles, portions of San Bernardino, portions of Ventura. Main Cities: Lancaster, Palmdale, Santa Clarita, Apple Valley, Hesperia, Victorville, Fillmore, Santa Paula, Los Angeles.

Senator Lois Wolk (D) State Capitol, Room 4032, Sacramento, CA, 95814. Fax: 916-323-2304. Counties: Portions of Sacramento, portions of San Joaquin, portions of Solano, Yolo. Main Cities: Davis, Fairfield, Manteca, Stockton, Tracy, Vacaville, West Sacramento.

AB 957 moves closer to passage

Great news, folks! The California Assembly Judiciary Committee voted unanimously this week in favor of Assembly Bill 957, "The Buyer's Act!"

For those of you who aren't up on this legislation, it would allow buyers of bank-owned properties to use their own title and escrow companies, as opposed to banks dictating those choices for them. Consumers who aren't allowed to pick their own title and escrow companies often end up paying up to twice as much in escrow fees to out-of-the-area escrow offices that don't even provide decent service.

Let's all stay on top of this important new bill as it will soon go before the entire state Assembly prior to going to the Senate and governor's desk! If you want to stay on top of the news, please sign up to have my posts sent to you directly.

Urge support for AB 957!

Assembly Bill 957, the “Buyer’s Choice Act,” is one of the best — and most needed — pieces of legislation to come down the pike in a long time.

And it's coming up for a vote in Assembly Judiciary Committee on Tuesday (5-5-09). AB 957 allow buyers of bank-owned properties to use their own title and escrow companies, as opposed to banks dictating those choices for them. In many cases, banks have been requiring that buyers use the title and escrow companies the banks have contracts with.

It’s a chummy relationship that often causes local homebuyers to pay up to twice as much in escrow fees to out-of-the-area escrow offices that often provide substandard service to the buyer. The federal Real Estate Settlement Procedures Act (RESPA) prohibits a seller of residential property from requiring or influencing a buyer to purchase title insurance from a company chosen by the seller.

So this practice is not only expensive — it’s just wrong.

I encourage readers, brokers, real estate agents and other industry professionals to contact Assembly Judiciary Committee members right away and urge them to vote in support of AB 957. Let’s put some ethics back into the industry. For more industry news, log onto RESPAnews.com.

Here's a form letter that was posted on RE Insider that you can sign and fax to Assembly Judiciary Committee members:

Dear Assembly Member:

I support AB 957, The Buyer’s Choice Act. This is important legislation that affects my business and must be enacted!

I understand that this bill will prohibit banks (sellers who acquired title to residential real property at a foreclosure sale) from requiring the buyer to purchase title insurance or use escrow services chosen by the seller/bank. And it would prohibit a seller/bank from, without good cause, disapproving the use of a title or escrow company chosen by the buyer.

Of particular importance is the language in the bill that prevents a bank who is a seller from disapproving of a buyer’s choice of title, escrow and settlement companies without good cause. This will help prevent the current practice of large banks from putting inappropriate pressure on buyers to agree to use companies that provide an advantage to the banks in the transaction.

This bill will put the choice of affiliate services back where it belongs, with the consumer. Thank you for undertaking this important legislation in California.

Sincerely,
____________________________(Signature)
____________________________(Printed Name)
____________________________(Company Name)
____________________________(Street Address, City, State, Zip)
____________________________(Phone Number)


CC: Assembly Member Cathleen Galgiani, FAX 916-319-2117
Assembly Judiciary Committee

Assemblymember Mike Feuer (D) - ChairState Capitol, Room 3146, Sacramento, CA 95814. Fax: 916-319-2142. Counties: Portions of Los Angeles. Main Cities: Beverly Hills, Sherman Oaks, West Hollywood, West Los Angeles.

Assemblymember Van Tran (R) - Vice ChairState Capitol, Room 4130, Sacramento, CA 95814. Fax: 916-319-2168. Counties: Portions of Orange. Main Cities: Costa Mesa, Garden Grove, Westminster, Fountain Valley, Stanton, Anaheim, Newport Beach.

Assemblymember Julia Brownley (D) State Capitol, Room 2163, Sacramento, CA 95814. Fax: 916-319-2141. Counties: Portions of Los Angeles, Portions of Ventura. Main Cities: Agoura Hills, Calabasas, Los Angeles, Malibu, Oxnard, Port Hueneme, Santa Monica, Westlake Village.

Assemblymember Noreen Evans (D) State Capitol, Room 6026, Sacramento, CA 95814. Fax: 916-319-2107. Counties: Napa, Solano, SonomaMain Cities: American Canyon, Calistoga, Napa, St. Helena, Santa Rosa, Vallejo, Yountville.

Assemblymember Dave Jones (D) State Capitol, Room 6005, Sacramento, CA 95814. Fax: 916-319-2109. Counties: Portions of Sacramento. Main Cities: Sacramento.

Assemblymember Steve Knight (R) State Capitol, Room 2016, Sacramento, CA. 95814. Fax: 916-319-2136. Counties: Portions of Los Angeles, Portions of San Bernardino. Main Cities: Adelanto, Lancaster, Palmdale, Victorville.

Assemblymember Paul Krekorian (D) State Capitol, Room 4005, Sacramento, CA. 95814. Fax: 916-319-2143. Counties: Portions of Los Angeles. Main Cities: Burbank, Glendale, Los Angeles, North Hollywood.

Assemblymember Ted Lieu (D) State Capitol, Room 3173 Sacramento, CA. 95814. Fax: 916-319-2153. Counties: Portions of Los Angeles. Main Cities: Lomita, Torrance, Redondo Beach, Hermosa Beach, Manhattan Beach, El Segundo, Venice, Westchester, West Los Angeles, Marina Del Rey, Playa Del Ray, Mar Vista.

Assemblymember William Monning (D) State Capitol, Room 5150 Sacramento, CA. 95814. Fax: 916-319-2127. Counties: Portions of Monterey, Portions of Santa Clara, Portions of Santa Cruz. Main Cities: Carmel by the Sea, Monterey, Morgan Hill, Santa Cruz.

Assemblymember Jim Nielsen (R)State Capitol, Room 6031Sacramento, CA 95814Fax: 916-319-2102. Counties: Portions of Butte, Colusa, Glenn, Modoc, Shasta, Siskiyou, Sutter, Tehama, Portions of YoloMain Cities: Alturas, Anderson, Chico, Colusa, Orland, Red Bluff, Redding, Weed, Yuba City.

Assemblymember Cathleen Galgiani (D)State Capitol, Room 5155Sacramento, CA 95814Fax: 916-319-2117. Counties: Merced, Portions of San Joaquin, Portions of StanislausMain Cities: Atwater, Lathrop, Merced, Newman, Stockton, Tracy

Bundling - for home buyers it's baffling

In some industries, bundling is a good thing.

Take AT&T, for example. They offer discounts for bundled services that include your home phone, Internet and advanced TV. The company touts its residential bundled services as a plan that "allows you to integrate all of your home services for less." Having it all in one package --the upshot? It provides "savings over traditional telecom services and up to 20 percent savings over ala carte options.”

That and similar scenarios seem to make sense. But I'm hearing about others kinds of bundling going on in the housing industry where title companies and banks are getting a little too chummy for their own good. In other cases, its banks and the asset management companies they deal with. Those are the businesses that sell off foreclosed properties on behalf of banks.

I'm hearing about these kinds of services being bundled exclusively together - services that aren't necessarily supposed to come together in one package and in fact, when they do specifically violate RESPA.

Here's the scenario: A title company comes to a bank and says, "We'll give you a discount if you put all of your title insurance through us - it'll be MUCH cheaper."

Or maybe the REO asset management company guarantees a similar break in price if the bank funnels all of its foreclosed properties to them.
These kinds of deals may well be cheaper for the bank. But they're also illegal under the California insurance codes and other mandates which also include HUD and its RESPA law that regulate these companies. If the inducement is volume discounts, and the discount is passed inside between affiliate service sellers and NOT the buyer – well it’s downright illegal – plain and simple.

I put in a few calls about this to some banks, but never heard back. I also called REO World, which describes itself as "the premier asset management company representing foreclosed properties in the Western & Central United States."

I finally did get a return call from them while I was in line at the grocery store. When the female REO World representative identified herself, I figured I was finally going to get some kind of perspective on this thing. But I was in line and about ready to pay, so I asked her if I could call her back in two minutes. Her response caught me off guard.
"I can save you some time," she said. "We're not interested in making any kind of comment. Our comment is, ‘No Comment.’”

So that was the end of that. It seems that no one wants to talk about this, but I know it's going on. And you can probably draw your own conclusions too. If these transactions are transparent, then why the “no comment” line? Because they aren’t transparent, probably aren’t legal and appear to be insidious.

An April 2007, a report by the U.S. Government Accountability Office said actions are needed to improve oversight of the title industry and better protect consumers.
The report said that investigations by the Department of Housing and Urban Development (HUD) and state insurance regulators have identified instances of alleged illegal activities within the title industry that appeared to take advantage of consumers' vulnerability by compensating Realtors, builders and others for consumer referrals. Combined, the report said, "…these factors raise questions about whether consumers are overpaying for title insurance."

I can understand companies wanting to make money - that's the American Way, after all. But it has to be done legally - and ethically. If you're setting up an arrangement where services are bundled together in an illegal manner, it's just wrong.

And who gets the short end of the stick?

The home buyer and seller. Their real estate agent. The American Public.

And HUD responds ...

Have you ever had somebody explain something to you that just doesn't make sense?

That happened to me a few days ago when I spoke to Kevin Stevens, a compliance protection specialist with the U.S. Department of Housing and Urban Development.

See, there was this legal action last year which determined that Natural Hazard Disclosure (NHD) statements in California are a settlement service as part of the escrow process and are subject to the Real Estate Settlement Procedures Act (RESPA).

Settlement services are essentially all the services that are paid for before a home changes hands, including things like mortgage insurance, property taxes and notary fees. And NHDs? They'd have to be at or near the top of the list in terms of importance. These are the reports that let a buyer know if the home they are purchasing is in a fire zone, an earthquake area or subject to some other undesirable situation.

"They are considered, unquestionably, to be a settlement service," Stevens, said. "Not all states have them."

But California does. So I asked Stevens how homebuyers, home sellers and real estate brokers in California are made aware of this. He said the requirement is listed in Section 1300 of HUD 1.

Well, I went onto HUD's website to check that out. Section 1300 of HUD 1 is listed under the banner, "Additional Settlement Charges." And that section includes just two entries: 1301 is listed as a "survey" and 1302, a "pest inspection."

The remaining lines - lines 1303 through 1305 - are blank.

That strikes me as rather odd because other sections of HUD 1 - sections 800, 1000 and 1100, for example - list a myriad of fees. Section 800 lists the loan origination fee, loan discount fee, appraisal fee, credit report, lender's inspection fee, mortgage insurance application fee and the assumption fee. Section 1000 includes hazard insurance, mortgage insurance, city property taxes, county property taxes and annual assessments.

And Section 1100 lists the settlement or closing fee, abstract or title search, title examination, title insurance binder, document preparation, notary fees, attorney's fees, title insurance, lender's coverage and owner's coverage.

But when we get to Section 1300, no mention is made of a Natural Hazard Disclosure statement. It's not hinted at, mentioned in passing or posted on the form in any way. Still, Stevens insists that California buyers, sellers and real estate brokers would be aware of the requirement. He explains it this way:

"It's not pre-printed," he said. "The title company ... would type that into the form."

The title company? Wow! Now I am really at a loss. What does the title company have to do with Natural Hazard reports? Nothing! In California, title companies are regulated by the Insurance Commissioner’s office of the state of California, with no relationship to the Natural Hazards industry, which is completely unregulated.

I will insist on getting the answer from someone at HUD. By now I wonder, “Is there someone who can direct me to a place in the statue, document, hidden drawer or a cloud in the sky that refers to the Natural Hazards Report as a settlement service?"

Where's my NHD?

J.K. Nakata, U.S. Geological Survey

Anyone who has ever purchased a home knows the process is pretty involved - and sometimes very long.

Buyers in search of their dream home often spend months or even longer scoping out the local housing market, not to mention the school systems, bus lines, shopping centers and a host of other factors before making their buying decision. All told ... it an be an emotionally draining experience.

And then there are the fees - lots of them.

These run the gamut from city and county taxes to the appraisal fee and a credit report fee. But there are plenty more, ranging from the mortgage insurance fee, closing fee, title examination fee, notary fees, attorney fees and additional costs for such things as hazard insurance and the lender's inspection fee.

These settlement services are all clearly outlined in HUD 1, a document provided by the U.S. Department of Housing and Urban Development. But there's one settlement service that's been left off the list - the Natural Hazard Disclosure report.

I don't understand why NHDs aren't included because these reports can contain some of the most crucial information you'd ever want to know. Consider this: What if you moved into a nice four-bedroom, two-bath home but found out a year later that you were sitting directly atop an earthquake faultline? Or in a high-fire zone? Or what if you learned you were in an area prone to mudslides?

These are the kinds of things NHDs reveal - ahead of time. Needless to say, they can play a BIG part in your decision to buy, or not buy, a home. A legal action last year determined that NHDs in California are, in fact, a settlement service as part of the escrow process and are subject to the Real Estate Settlement Procedures Act (RESPA).

I contacted HUD to get their position:

Are Natural Hazards Reports a settlement Service?

HUD spokesman Brian Sullivan said, "For California it most certainly is a settlement service."

Is HUD enforcing this mandate?

"We believe so,” Sullivan said. “If it’s not, it’s a violation of RESPA.”

But if HUD is enforcing this, why aren't NHDs included in HUD 1 as a settlement service for real estate transactions that occur in California? Sullivan didn't exactly have an answer for that one.

"It's not a requirement across the country," he said. "Just in certain states."

I can not find any communication from HUD that reflects Mr. Sullivan's comments. No mention on HUD 1, no official or un-official communication was posted, not one word in any place. Are these legal requirements posted in a secret drawer that I cannot reach? Is HUD reaching far out of the legal requirements?

I am committed to get to the bottom of this one; I do not believe in legal requirements that are posted on a cloud.

No truth in advertising ...

In the real estate industry, the practice is known as "white labeling." But let's call it what it really is - a kickback. And it's costing consumers.

Here's how it works:

Some title companies are wholesaling their Natural Hazard Disclosure reports or data to real estate brokerage firms. These brokerage firms then slap their own name on the reports and sell them at an inflated price to unsuspecting consumers.

It's a cozy little relationship that funnels guaranteed business to the title company while also generating a profit for the brokerage firm - all at the expense of the consumer.

This sets up a business relationship that is not only unethical, but in direct violation of California Insurance Code, Section 12404. Don't know that code? It's the one that says it's "unlawful for any title insurer, underwritten title company or controlled escrow company to pay, directly or indirectly, any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business."

In other words ... it's wrong.

NHD reports are an important part of the home-buying process because they let the buyer know whether a property is located within hazardous areas, including flood areas, zones prone to high fire hazards or seismic areas that could experience earthquakes.

But the consumers who pay for these reports are certainly entitled to know where they're coming from - and if they are, in fact, accurate and complete.

In an Oct. 9, 2008 news story on RESPAnews.com, Attorney Craig Nevin of Nevin, Ramos & Steele termed white labeling "illegal" and "offensive."

HUD (the U. S. Department of Housing and Urban Development) determined that Natural Hazard Disclosure reports are considered a settlement service under RESPA, the Real Estate Settlement Procedure Act. Nevin says white labeling "eliminates the consumer's right to choose a third-party report provider" while also attempting to circumvent RESPA.

If HUD chooses to investigate white labeling and determines that there is no value added to justify the increased cost to consumers, the practice could be violation of RESPA Section 8(b) and a kickback in violation of Section 8(a), according to Nevin.

The ball is in HUD's court. Now we just need to see some action.

Who's minding the store?

We're living in an era of lax oversight.

Don't believe me? Just pick up your newspaper or turn on the TV and you'll hear all about it. The excesses are well documented - from the $50 billion Ponzi scheme of New York financier Bernard Madoff to lavish spending by mega insurer American International Group, which received $150 billion in federal bailout money last fall.

While the oversight was poor and sometimes nonexistent in the financial markets, I find that poor oversight is deeply rooted in the real estate industry as well. The one issue that's come to my attention is the uneven application of how natural hazard disclosure statements figure into the mix. Specifically, are natural hazard disclosures (NHD) regulated by HUD? Are they a settlement service?

California, under Civil Code Section 1103.2 requires that an NHD is provided to a prospective buyer buyer of real property in a timely manner. Natural hazard disclosure statements identify whether a property is located within hazardous areas, including flood areas, zones prone to high fire hazards or seismic areas that could experience earthquakes.

Are escrow companies and officers not responsible for the NHD law compliance? Is NHD a settlement service under RESPA? And if it is, why isn't the Department of Housing and Urban Development (HUD) enforcing the disclosure requirements of the NHD?

I am finding conclusive evidence that NHDs are a settlement service under RESPA.

I'll be looking into this and other issues in upcoming blogs, so stay tuned!