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

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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