A bill prohibiting real estate professionals from requiring the use of affiliated business arrangements as a condition of obtaining settlement services is under consideration by Colorado’s legislature.

Colorado House Bill 1141, sponsored by Rep. Dale Hall and Sen. Dan Grossman, prohibits title insurance companies, title insurance agents, settlement producers, and real estate brokers from requiring the use of an affiliated business arrangement or any particular settlement producer or provider as a condition of obtaining a settlement service.

The title insurance industry came under an intense spotlight in 2005. Insurance regulators in Colorado in February launched an investigation of nine Colorado title insurers for alleged kickback schemes said to result in overcharges to consumers. The probe sparked dozens of similar investigations nationwide, including probes in Florida, Washington, Hawaii, California, Oklahoma, Minnesota and Washington.

The alleged kickback schemes involved sham affiliated business arrangements, or ABAs, between title insurance companies and builders.

Affiliated business arrangements among real estate service providers are legal under the Real Estate Settlement Procedures Act, known as RESPA, as long as certain guidelines are followed and companies disclose their relationship to consumers.

The Colorado bill authorizes affiliated business arrangements between title insurance companies, title insurance agents, settlement producers, and real estate brokers if the arrangement does not involve compensation for the referral of title insurance business and does not violate existing prohibitions on such entities.

The bill defines a “settlement producer” as a “person who is in position to refer business that is incident to or a part of a settlement service. ‘Settlement producer’ includes, but is not limited to, a person who: (a) buys or sells an interest in real property; (b) makes loans secured by an interest in real property; (c) acts as an agent, representative, attorney, or employee of a person who buys or sells real property or lends or borrows money with an interest in real estate as security; or (d) is an associate of a person described in this subsection.

It specifies that giving or receiving, or attempting to give or receive, remuneration in any form pursuant to any agreement or understanding for the referral of title insurance business is an unfair method of competition and an unfair or deceptive act or practice, and requires the disclosure of an affiliated business arrangement to the consumer at the time of an initial real estate contract or when the offer to purchase real property is fully executed.

The bill also requires title insurance companies, title insurance agents, and real estate brokers to disclose the existence of their affiliated business arrangements to the division of insurance or division of real estate in connection with an application for a new or renewed license, and authorizes the commissioner of insurance and the real estate commission to promulgate rules to regulate affiliated business arrangements.

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