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

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

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

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