HUD Settles With Six Builders Over RESPA Violations

WASHINGTON – Oct. 30, 2007 –The U.S. Department of Housing and Urban Development (HUD) announced settlements with six major U.S. homebuilders over RESPA violations. According to HUD, complex business arrangements through the company’s captive title reinsurance company shielded payments for business referrals.

Combined, the $1.4 million settlement payments in these six agreements with other settlements involving captive title reinsurance bring the total amount of negotiated settlements in the past year and a half to $4.95 million. The recent companies include:

• $466,000 settlement with Pulte Homes Inc., and its captive title reinsurance company Marquette Title Insurance Co.

• $456,000 settlement with KB Home and its captive title reinsurance company Westview Co.

• $261,000 settlement with Beazer Homes USA Inc. and its captive title reinsurance company Security Title Insurance Co.

• $66,000 settlement with Meritage Homes Corp., Meritage Homes of California Inc., Meritage Homes of Nevada Inc., Meritage Homes of Arizona Inc., and their captive title reinsurance company Meritage Paseo Crossing LLC

• $84,000 settlement with The Ryland Group Inc. and its captive title reinsurance company Cornerstone Title Insurance Co.

• $52,000 settlement with Technical Olympic USA Inc. (TOUSA Homes) and its captive title reinsurance company Universal Land Title Inc

“There’s no legitimate purpose for captive title reinsurance when it comes to single-family homes,” says Brian D. Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner. “It’s increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks which are expressly forbidden by law.”

Captive title reinsurance is a practice where a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring business to the title insurance company. In HUD’s view, any captive title reinsurance arrangements in which payments are not bona fide and exceed the value of the reinsurance are a violation of RESPA.

There is particular concern when these arrangements involve an entity that is in a position to refer business to the primary title insurer. According to HUD, there is also strong evidence these arrangements are designed to generate referral fees when there is a history of few or no claims paid by the reinsurance company. The companies cooperated with HUD in reaching these settlements. In addition to the settlement payments, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.

This is the third round of settlements at the federal level involving the recipients of payments made by title insurance companies to captive companies for reinsurance. The settlements come in the wake of two rounds of settlements that HUD reached with five major homebuilders and one lender for a total of $3.55 million.

The Real Estate Settlement Procedures Act was enacted in 1974 to provide consumers advance disclosures of settlement charges and to prohibit illegal kickbacks and excessive fees in the home buying process. Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business.

© 2007 FLORIDA ASSOCIATION OF REALTORS®

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