HUD Announces Settlements In Kickback Scheme Involving Oklahoma Real Estate Agents, Home Builders, And Title Companies
March 22, 2005
Real estate agents, home builders received payments for steering customers to affiliated title companies
WASHINGTON - The Department of Housing and Urban Development today announced two related settlements involving allegations that several Tulsa area home builders, real estate companies, and title companies were attempting to skirt the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Combined, the companies agreed to pay $450,000 and cease their business practices that triggered HUD's investigation.
HUD claimed that the parties violated Section 8 of RESPA, which prohibits anyone from giving or accepting a kickback in exchange for referrals of settlement service business, by creating middleman companies that distributed a portion of the affiliated title companies' profits to the real estate agents and homebuilders in exchange for steering customers to the title companies. In addition, HUD alleged that one of the title companies, Closings of Tulsa, violated RESPA by marking up charges to some consumers for abstract services and recording fees."Today's settlements serve as a stark reminder for those who may attempt an end run around the law," said John C. Weicher, HUD's Assistant Secretary for Housing and FHA Commissioner. "RESPA is clear-while affiliated business arrangements are allowed, using complex relationships to mask referral fees amounts to a kickback."
Real Estate Settlement
After a sixth-month investigation, HUD alleged that McGraw Davisson Stewart, a Tulsa-based real estate company, encouraged its agents to establish a shell organization, Residential Sales Associates. Residential Sales Associates then purchased an interest in Closings of Tulsa, an affiliated title company that was partially owned by McGraw Davisson Stewart. Residential Sales Associates collected a portion of Closings of Tulsa's profits, and then redistributed the profits back to the real estate agents based on the sale prices of the transactions that the agents referred to Closings of Tulsa. HUD also alleged that the agents paid a below market price for their ownership interests.
McGraw Davisson Stewart and its real estate agents received significant financial benefits arising from their referral of business to Closings of Tulsa, LLC. Combined, these parties agreed to pay a settlement amount of $325,000, and modify their business practices to be fully compliant with all RESPA provisions.
HUD's investigation also found that in October of 2003, a group of approximately 40 Tulsa-area homebuilders formed a company called Builders Services in order to acquire an indirect ownership interest in Builders Title. The Department claimed that Builders Services redistributed Builders Title's profits back to the home builders based on the total sales prices of the real estate contracts that the home builders referred to Builders Title. RESPA allows certain affiliated businesses to share profits that are based on the actual ownership interest, but payments based on the value or amount of referrals violates the law's anti-kickback provisions.
The home builders received significant financial benefits arising from their referral of home buyers to Builders Title. Combined, these parties agreed to pay a settlement amount of $125,000, and modify their business practices to be fully compliant with all RESPA provisions.
The home builders received significant financial benefits arising from their referral of home buyers to Builders Title. Combined, these parties agreed to pay a settlement amount of $125,000, and modify their business practices to be fully compliant with all RESPA provisions. The parties to the settlements are:
- McGraw Davisson Stewart
- Residential Sales Associates
- Closing and Escrow Company of Tulsa Closings of Tulsa
- 2003 Builders Services Builders Title
- Joseph McGraw and John Woolman signed individually and on behalf of McGraw Davisson
- Stewart Robert and Helen Dailey, individually and on behalf of Closings of Tulsa,
- Builders Title, and Closing and Escrow Company of Tulsa
- Peter McGraw, individually and on behalf of Residential Sales Associates
- Darrell Jenkins, individually and on behalf of McGraw and 2003 Builders Services