The Department of Housing and Urban Development (HUD) settled with six more home builders and their affiliated title companies that it was investigating for violating the federal Real Estate Settlement Procedures Act (RESPA), which prohibits accepting anything of value in exchange for referral of settlement service business.
Pulte Homes, KB Home, Beazer Homes USA, Meritage Homes, The Ryland Group, and Technical Olympic USA as well as their captive title reinsurance companies, agreed to settlements totaling $1.4-million. 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.
Investigators said accepting payment from title companies for title reinsurance was a thinly disguised way to hide payments for referrals. Reinsurance, the practice of paying other entities to take on a portion of insurance risk, is common in the insurance industry. But the case of title companies paying builders' title companies to take on the a portion of the risk smacks more of referral fees than legitimate spreading of risk, HUD investigators claimed, because title insurance carries little risk of default.
"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 a 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."
Under the agreements, Pulte Homes and Marquette Title Insurance paid $466,000; KB Home and Westview Co. paid $456,000; Beazer Homes USA paid $261,000; Meritage Homes Corp., Meritage Homes of California, Meritage Homes of Nevada, and Meritage Paseo Crossing paid $66,000; The Ryland Group and Cornerstone Title Insurance paid $84,000; and Technical Olympic USA and Universal Land Title paid $52,000.
This was the third round of similar settlements with large national builders. In total, builders and their title companies have paid $4.95-million to HUD for violations in the last year and a half. Shea Homes Inc, William Lyon Homes, Fulton Homes, M.D.C. Holdings, Richmond American Homes, and WL Homes LLC, which does business as John Laing Homes, and their affiliated title companies, also paid fines to HUD for the practice.