The Colorado Division of Insurance is sending 600 interrogatory letters to 50 title insurance companies as part of its investigation of partnerships among real estate service providers, known as affiliated business arrangements, media reports said.

The letters will ask title agencies if they are in affiliated business arrangements as defined by the Real Estate Settlement Procedures Act, or RESPA, and Colorado statutes, among other things, news sources said.

Affiliated business arrangements are partnerships between real estate entities such as title insurance companies, mortgage lenders and real estate brokers. They are legal under RESPA, as long as certain guidelines are followed, such as disclosing the relationships to consumers.

“We’ve targeted about 50 companies in Colorado,” said Erin Toll, Colorado’s deputy insurance commissioner and co-chair of the National Association of Insurance Commissioners’ Title Insurance Working Group.

In March, Toll launched an investigation of affiliated business arrangements, or ABAs, among real estate service providers in her capacity as co-chair of the committee, which is made up of state insurance commissioners.

Toll said there are 50 companies owned and operated by about 10 individuals. “That’s why we’re suspicious. They’re all under the same address,” Toll told Inman News. However, Toll said she would reserve judgment until she received the answers to questions she will send to the companies.

Toll is probing the business partnerships to see if they are following legal guidelines under RESPA, which regulates referrals and other practices in the real estate closing process.

Companies engaged in affiliated business partnerships say they go to great lengths to ensure they are properly following regulations.

Affiliated business partnerships have come under increased scrutiny in the wake of investigations into title insurance industry referral practices. Industry insiders have noted a significant upswing in these types of affiliated partnerships in recent years.

Critics of affiliated partnerships in real estate charge that the arrangements encourage kickbacks by making it easier to hide them.

Colorado’s insurance division is investigating national real estate title insurers for alleged kickbacks. The investigation set off a national probe of title insurance companies in several other states. In the alleged schemes, title insurers agreed to give about half of the premium on title insurance policies to captive reinsurance companies created by the other conspirators. The parent companies of those captives would in turn refer business to the title insurer.

In the initial Colorado probe, First American agreed to refund about $24 million to consumers nationwide without admitting liability or wrongdoing.

In late June, a Broomfield, Colo., title insurance company under investigation for allegedly attempting to give kickbacks for referrals agreed to pay a penalty of $10,000 to the Colorado Division of Insurance.

“While we don’t believe our actual practices violated any laws…we now know that parts of our internal marketing have been vague and confusing. Therefore, we have agreed to a settlement,” said Mark Marone, one of the owners of Horizon Title, which does business as American Liberty Title, of the settlement.

Recently, Toll began investigating companies engaged in affiliated business arrangements for possible similar misdeeds.

Several years ago, the U.S. Department of Housing and Urban Development, which polices RESPA, began allowing title insurance companies, private mortgage insurance companies and others to form affiliated business arrangements.

In a typical arrangement, a real estate brokerage will set up a joint venture with a mortgage lender, for example. The partnership typically provides an in-house, one-stop shopping experience for the home buyer or seller, offering brokerage, lending, and even closing services under one roof.


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