The U.S. Department of Housing and Urban Development (HUD) announced earlier this week that it reached settlements with six home builders who allegedly established title insurance companies that took payments for a portion of the insurance risk. The agreements stem from alleged violations of the Real Estate Settlement Procedures Act (RESPA) and total nearly $1.4 million.
According to HUD, 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 the title business."
"There's no legitimate purpose for captive title reinsurance when it comes to single-family homes," said Brian D. Montgomery, HUD assistant secretary for housing and federal housing commissioner. "It's increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks, which are expressly forbidden by law."
This is the third set of settlements with builders for HUD. The previous settlements that HUD reached with five home builders (Fulton Homes, John Laing Homes, M.D.C. Holdings, Shea Homes, and William Lyon Homes) and one lender (Fidelity National Tile Insurance Co.) totaled $3.55 million.
The latest settlements with builders included Pulte Homes, KB Home, Beazer Homes USA, Meritage Homes Corp., the Ryland Group, and Technical Olympic USA (TOUSA).
Although all of the builders have denied any wrongdoing in the settlement agreements, they settled the civil cases to avoid legal expenses. In addition, the companies agreed not to enter into any new captive title arrangements and to cease writing new captive title reinsurance business.
Under the settlement the home builders and their title insurance companies will pay:
- Pulte Homes and Marquette Title Insurance Co. - $466,000;
- KB Home and Westview Co. - $456,000;
- Beazer Homes USA and Security Title Insurance Co. - $261,000;
- Meritage Homes Corp. and Meritage Paseo Crossing - $66,000;
- Ryland Group and Cornerstone Title Insurance Co. - $84,000; and
- Technical Olympic USA and Universal Land Title - $52,000.