HUD Announces Six Settlement Agreements With Builders Involved In Captive Title Reinsurance Arrangements
|October 30, 2007
WASHINGTON - The U.S. Department of Housing and Urban Development announced separate settlement agreements with six major homebuilders that engaged in complex business arrangements involving captive title reinsurance. The agreements announced stem from alleged violations of The Real Estate Settlement Procedures Act (RESPA) and total nearly $1.4 million.
Combined, the 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.
- $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 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 it’s captive title reinsurance company Cornerstone Title Insurance Co.; and
- $52,000 settlement with Technical Olympic USA, Inc. (TOUSA Homes) and its captive title reinsurance company Universal Land Title, Inc.
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 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. 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.