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U.S. Intervenes in Alleged Kickback Lawsuit
December 30, 2010A motion to intervene by the United States was granted Dec. 22 by
U.S. Sixth Crcuit Court of Appeals in alawsuit accusing two real estate companies of setting up sham title companies in order to receive kickbacks.The court approved federal intervention in Carter v. Welles-Bowen Realty, Inc. after the plaintiffs appealed aruling in favor of the defendants. The Ohio plaintiffs allege Chicago Title Insurance Co. collaborated with WellesBowen Realty and Danberry Co. to create two sham title companies. According to the lawsuit, Chicago Titleperformed the title searches. WB Title and Integrity Title then evaluated the title evidence to determneinsurability, issued title commtments, and issued final title insurance policies.The plaintiffs were provided with disclosures of defendants' ownership arrangement when the plaintiffspurchased title insurance. Plaintiffs were not required to use any particular title insurance agency. The only thingof value that the owners of WEI Title and Integrity Title received was a return on their ownership interest. Theplaintiffs do not allege they received subpar title insurance services or were overcharged for those services.However, RESPA allows recovery of treble damages by consumers who are charged for any settlement servicerendered in violation of the anti-kickback provision.The United States moved to intervene in the appeal to address two Issues:
whether a policy statement issued by the United States Department of Housing and Urban Developmentis unconstitutionally vague; and
whether that policy statement is entitled to deference. The plaintiffs support the intervention of thegovernment, and the defendants oppose the motion to Intervene.In addition, the court granted the plaintiffs motion to seal their brief, stating that it will disclose confidentialfinancial material that is protected by two confidentiality agreements entered into in the district court. Thedefendants support the motion to file under seal.
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In June 2010, a judge for the U.S. District Court for the Northern District of Ohio ruled in favor of the defendantssaying WB Title and Integrity Title are providers of settlement services."There is no dispute they meet the three requirements of the Section 2807(c)(4) exception for ABAs. Therefore,Defendants have not violated the anti-kickback or unearned fee provisions of RESPA," Judge Jack Zouharyruled. Zouhary went on to say that HUDs Ten-part test used to determne whether an A1BA is a sham underRESPA or whether it constitutes a bona fide provider of settlement services is unconstitutional vague andprovides insufficient guidance.Click here to read the memorandum and opinion Issued by Judge Jack Zouhary.According to Zouhary: "HUDs interpretation of 12 U.S.C. § 2807 in Policy Statement 1996-2 is unconstitutionallyvague. It provides insufficient guidance to the regulated public, and It lacks identifiable standards under whichauthorities (or private parties) can enforce its provisions in a crimnal or civil context."The judge goes on to say RESPAs general prohibition on kickbacks remains in full force.Prior to this opinion, HUD published an Advanced Notice of Proposed Rulemakinq (ANPR) seeking input bySept. 1 to strengthen and clarify RESPAs "required use°prohibition.ALTA provided comments to the APNR supporting HUDs efforts to strengthen and clarity the prohibitionbecause questions and legal challenges have resulted from unclear definitions and enforcement. "Consumersand industry stakeholders benefit from a level playing field and ALTA supports HUDs efforts to create clearerguidance and enforcement on this subject,' Kurt Pfotenhauer, ALTAs chief executive officer, wrote in the
comment to HUD.
Our experience in implementing the new RESPA rule shows the value of clear guidance and strongenforcement," Pfotenhauer said. "Implementation of the new RESPA rule has revealed a number of gaps Inguidance resulting in conflicting interpretations of 'acceptable' practices. Conflicting Interpretations have made Itdifficult for market participants to determne if they were in compliance or to achieve an accepted uniformty ofprocess. If conflicting interpretations of the 'required use' prohibition are not prevented, market variations willerode the efficacy and intent of improvements to the rule."