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HUD Announces Three Settlements With Builders Involved In Captive Title Reinsurance Arrangements

October 13, 2006


HUD

HUD Announces Three Settlements With Builders Involved In Captive Title Reinsurance Arrangements; Nearly $2 million in settlements the result of Department's enforcement effort

WASHINGTON - The Department of Housing and Urban Development today announced $1.95 million in settlements under The Real Estate Settlement Procedures Act (RESPA) with three major homebuilders that engaged in business practices involving captive title reinsurance. These agreements bring the total amount of negotiated settlements with builders and lenders involved in captive title reinsurance to $3.55 million.

The agreements include a $950,000 settlement with Shea Homes, Inc., and its captive title reinsurance company Shea Financial Services, Inc.; a $850,000 settlement with William Lyon Homes and its captive title reinsurance company Duxford Title Reinsurance, Inc.; and a $150,000 settlement with Fulton Homes, an Arizona builder.

"We've taken a long hard look at captive title reinsurance and see almost no legitimate purpose for it when it comes to single-family homes," said Brian D. Montgomery, HUD Assistant Secretary for Housing and Federal Housing Commissioner. "HUD will continue to scrutinize these and other affiliated business arrangements to see if they were set up merely as a way to pay for the referral of settlement service business."

Captive title reinsurance is a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by or affiliated with 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. 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.

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 second 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 a first round of settlements that HUD reached with builders and a lender for a total of $1.6 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.

To read the settlement agreements announced today, visit HUD's website.



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