Curious about the complaints HUD has been getting about possible kickback violations?

Reprinted with permission from www.RESPANews.com

RESPANews.com is the industry's only source for everything RESPA. Visit us at www.RESPANews.com and if you subscribe for only $149.99, you'll receive a bonus report: RESPA Q&A. This 20-page special report highlights the most frequently asked RESPA questions by brokers, real estate agents, appraisers, lenders and title companies, with answers by our panel of RESPA experts.

In a couple of past articles, we proposed that if you know of someone in your area who might be violating RESPA, Section 8 as it related to kickbacks, to let HUD know. We subscribe to an online publication called www.RESPANews.com and they recently published a list of violations reported to HUD, by state, and they have given us permission to reprint their article.

By the way, we'd like to hear what's happening in your neck of the woods. Your comments will remain confidential but we may publish some of the suspicious activities in future issues. (In your email response, provide us with the state you're located in.) Here are the RESPA issues I know about in my area. (Click here now to email us your response).

All across the nation, members of the industry have contacted us about questionable practices that they see occurring in their local markets, and about their suspicions regarding neighboring companies - suspicions which have led some of them to report the companies to HUD. Curious about what HUD is hearing from the competitors in your state? Read on for an exclusive look at some recently-reported RESPA violations...from your lips to HUD's ears.

California

A mortgage broker reports that real estate companies with their own in-house lenders are essentially requiring their agents to all but force their clients to use only their lender. The company, manager of the office, and in some cases, the real estate agents, all get incentives. The broker believes that "indoctrinating" agents to only give out the in-house lender's name is not in the client's best interest, does not fulfill the agent's fiduciary responsibility to thier clients and violates RESPA.

Florida

In Orlando, a mortgage professional reports that large home builders are now forcing buyers of newly-constructed homes to put down a deposit up to three times higher if they do not use the builder's affiliated/controlled mortgage company.

Another mortgage professional in the state reports that illegal AfBAx and kickbacks are all over the place, and is so fed up with the situation that they are ready to go up to Washington personally to fight it.

A title professional in Central Florida reports that a large percentage, if not the majority, of builders and Realtors® have shady alliances with title companies. They believe that fully 50 or more area real estate agents/brokers have such arrangements, many with nothing but LLCs formed. Some appear to have licenses, but not many have separate offices. The whistleblower also thinks that almost 100 percent of the area builders have them, and steer business by withholding a 2 percent partial payment of the closing costs, which many times are apparently inflated.

The local Board of Realtors® has reportedly done nothing since the larger companies are involved, and the state has taken no action on the builders. The Treasury Dept. has reportedly taken some action, but can only act when a complaint is filed, and does not have enough manpower to actively police the industry. Attorney General Charlie Crist has said he will investigate, but is also running for governor, so there may be some election issues that arise. Nevertheless, the whistleblower believes that 70 percent of the business is being steered by these AfBAs, with no additional choices being offered to consumers.

Georgia

A mortgage company owner in Atlanta says that there are several real estate firms requiring on their sales contracts that a particular law firm close the transaction. The law firm has a JV title insurance relationship with the real estate firm and each individual Realtor's commission is being tied to the number of deals they refer to the JV as well as the broker being able to split the profits of the JV. Reportedly, the closing costs were several hundred dollars higher than they would have been with a different closing attorney.

Also, a local builder, part of a national chain, reportedly requires on their sales contracts for a lender to be used that is co-owned by the builder. The whistleblower claims to know for certain that the interest rate and loan program used to close the loan was substantially higher than it would have been at a non-affiliated lender.

Illinois

Reports from this state indicate that attorneys are getting kickbacks for being title agents. They steer their clients to companies that they have controlled business relationships with, and make three times more money off upselling the title than they do from their legal work. The whistleblower tells us that while the customer should be able to pick a cheaper title company, the attorney controls where the title is ordered from.

Louisiana

HUD's director of RESPA enforcement, Ivy Jackson, recently spoke at the Louisiana Realtor's Spring Conference in a Q&A session for real estate agents, title agents and home warranty reps.

There, she highlighted two specific areas that she would be looking at:

1. Internet real estate agent referral programs where agents put up $2500+ for lead referrals.
2. Relocation companies forcing purchasers to use particular title agents in order to close.

New Hampshire

A mortgage professional reports that all of the Realtors® who have in-house lenders are telling their agents that they have to refer business to the in-house lender, who then compensates them for every deal. They have been told that all Realtors® are compensated in a bonus structure for the in-house business and have heard from others in the industry that this has been going on for nine years. They have never heard about these shops being audited like individual lenders are, and wonders why HUD isn't looking at this. The whistleblower suggests that HUD give Realtors® a closer look.

The same person also reported that some loan officers are being pressured by Realtors® to use a particular title company because the title company reportedly gives Realtors® a $50 gift certificate for every referral.

New York

An angry member of the industry tells us that the situation in New York is "appalling" and claims that HUD does not know how to catch the "crooks" in this business at all. They report that title companies are splitting their premiums and giving out as much as 50 percent as kickbacks, and that anyone who wants to compete on service or through a legitimate AfBA cannot. They suggest that HUD open a title company, offer bribes, and see who takes them.

Ohio

A title professional reports that Toledo is seeing an influx of suspicious AfBAs being setup by title companies.

Texas

An industry professional reports that a large mortgage company is blatantly providing kickbacks to real estate agents on every transaction. Specifically, the whistleblower believes that they are paying Realtors® between $400 - $500 per closing. The Realtors® are apparently not doing any of the 15 items required by HUD and there is no AfBA agreement that the person is aware of. We are told that the company has gained market share in the Dallas/Ft. Worth area very fast because of this.

Insert your state here

Do you know of suspicious things going on in your local marketplace that you'd like to see investigated?

In order to report a RESPA violation, you should send HUD a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. HUD prefers that you also include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to:

Also, Ivy Jackson said at the last RESPRO conference that the industry could reach her by phone at (202) 708-0502.

You may also wish to send a complaint to State and other Federal agencies that have the responsibility for regulating the settlement providers engaged in the referenced practice. As far as we know, there is no way to know if a company has already been reported, because the agencies won't release that information until after an investigation is completed.

Copyright, 2005, LoanOfficerMagazine.com

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