Real Estate & Property Law

Title insurance for most consumers is a once or twice in a lifetime experience. Consumers, unfortunately, only know that they need it and may not understand the role of the professional licensed to sell the insurance. As an industry, we have failed to educate and clearly define the product and our role in the settlement process.

One of the little known facts that all consumers should be aware of is that when it comes to title insurance, you have a choice in selecting your settlement services provider. Unfortunately, too many loan originators and real estate agents bamboozle their clients into their affiliated businesses which leave them with effectively no choice at all.

The consumer's best interests are not always being served by the party making the referral to the affiliated title insurance agency. The consumer may be paying more for services than otherwise would be charged by another provider and may not be referred to the most knowledgeable and experienced professional.

Affiliated Business Arrangements exist only to allow the referring party to be compensated. These companies are known as AfBAs and have the blessing of HUD when the entity is formed and operated according to a laundry list of requirements. Yes, a legal kickback.

Some title insurance professionals are hoping that one day the Secretary of HUD and the Pennsylvania Insurance Commissioner (and Commissioners throughout the country) will take a closer look at what is really going on in the industry and inside the AfBAs, including noncompliance, claims, inexperienced staff and absentee license holders. We are seeing some movement toward transparency as insurance Commissioners in more than a few western states are exposing the pitfalls of Affiliated Business Arrangements and are reining them in.

I'm happy to pull back the curtain on the AfBAs. Here are a few excerpts from actual conversations I have had with real estate agents and a conveyancer referring to their company shop.

You provide excellent service but my broker tells me that he cannot pay me the higher commission split if I do not refer my customers to the affiliated title agent.

When I transferred to XYZ Real Estate Company, I was given three free mortgage applications (from the affiliated lender) to give to my customers.

I am part of a team where we earn points for the number of title insurance applications and mortgage applications we refer to the affiliates. The team with the most points wins a prize.

All real estate transactions are entered onto a transmittal form and not only does the broker receive a copy but the affiliated title agency does also. If an outside title agent is used, the real estate manager will call the agent into the office and reprimand him or her and make the agent change the title insurance provider to the affiliate.

You cannot imagine the pressure we are under to use the affiliates.

I gave them your name as the buyer's title agent because I am sick and tired of them ramming our company down my throat.

Our commission split is not affected but they do keep track of how many times we use the title and mortgage companies and then give us relocation deals based on our support of the affiliated businesses.

I hate that we have an affiliated title agency; I keep telling them that it is not a good idea. Who needs more risk?

Can you guarantee closing? This from a real estate agent whose company will pay $500 to the purchaser if the transaction does not close on the date in the Agreement of Sale but conditioned upon the purchaser using the affiliated mortgage lender and title agent.

As stated by a real estate agent and relayed to me by a loan officer: I use
the affiliated title agency because I have the opportunity to buy-in.

The bottom line question: Are AfBAs really good for the consumer? To find the answer you have to question the motivation of the person making the referral. Does the person making the referral have the best interest of the consumer in mind or will she or her employer, whether a real estate or lending entity, benefit economically from the referral.

There is no place like home, so you better wake-up and stop clicking your heals, hope won't bring you home; It's time for all of us, consumers, licensed title professionals, Secretary of HUD and State Insurance Commissioners, to tear-down the curtain and start asking the tough questions.