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HUD Settles Case Against Tennessee Title Company Over Violations Of Mortgage Rules

July 13, 2005

First American accused of paying kickbacks to sham businesses

HUD Press Release

WASHINGTON – The Department of Housing and Urban Development today announced a legal settlement with a Tennessee title company for violating the Real Estate Settlement Procedures Act (RESPA). HUD claimed First American Title Insurance Company, doing business as Memphis Title Company, made payments through sham affiliated businesses in the Memphis area in violation of RESPA’s anti-kickback and unearned fee provisions.

First American agreed to make a $680,000 payment to the U.S. Treasury and cease any further business operations involving the sham business affiliations.

“The law is clear on this point,” said Brian Montgomery, HUD's Assistant Secretary for Housing and FHA Commissioner. “Parties that perform real work in the mortgage transaction deserve bona fide compensation but fabricating sham affiliations for the purpose of obscuring kickbacks violates the law.”

Sham Business Arrangements

Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.

HUD’s investigation determined that First American created or acquired eight affiliated title companies with various builders, real estate agents and mortgage brokers. HUD found that the companies were paid for certain title and settlement work they did not perform—services that were essentially provided by First American. HUD concluded that the companies were sham businesses used to make referral payments back to the builders, real estate agents and mortgage brokers in violation of RESPA.

In its settlement with HUD, First American further agreed that if it formed affiliated companies in the Memphis area in the future, each company would:

  • Have sufficient initial and operating capital to perform settlement services;
  • Be staffed with employees who work for that entity and are not shared with any other title entity, builder, real estate agent, mortgage broker, or other settlement service provider;
  • Have an office for its use in conducting business that is separate and apart from that of any other title entity;
  • Comply with HUD policy statements with regard to the performance and payment for title services;
  • Actively compete in the marketplace for title insurance business and seek business from parties other than the builders, real estate agents and mortgage brokers or other settlement service providers with which it has an affiliate relationship; and,
  • Refrain from business practices that provide unearned fees or kickbacks in return for the referral of settlement service business.

Source: HUD

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