Without admitting wrongdoing, six major home builders have agreed to pay nearly $1.4 million to settle charges that subsidiary companies they created to “reinsure” home buyers’ title insurance policies violated the Real Estate Settlement Procedures Act (RESPA).
The settlements, announced today by the U.S. Department of Housing and Urban Development, follow two earlier rounds of settlements. In those settlements, five major home builders and one lender agreed to pay $3.55 million to settle charges that payments they received under captive reinsurance schemes violated RESPA.
The home builders involved in the settlements announced today are Pulte Homes Inc., KB Home, Beazer Homes USA Inc., The Ryland Group Inc., Technical Olympic USA Inc., and Meritage Homes Corp., and related companies.
HUD maintains that captive reinsurance policies are often designed to generate referral fees for builders, with reinsurance companies receiving payment from title insurers despite paying few or no claims.
“There’s no legitimate purpose for captive title reinsurance when it comes to single-family homes,” said Brian D. Montgomery, HUD’s assistant secretary for housing and federal housing commissioner, in a statement. “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.”
According to the $261,000 settlement agreement with Beazer Homes, Beazer maintained that its captive title reinsurance subsidiary, Security Title, was not subject to RESPA because it did not provide settlement services.
Created in 1999, Security Title entered into “multiple” agreements with title insurance carriers that provided the company with reinsurance premiums until 2005 on title insurance policies covering properties in Arizona, California, Colorado, New Jersey, Nevada and Tennessee.
The title insurance fees paid by Beazer customers were the same regardless of whether the policies were reinsured by Security Title or not, the builder said.
HUD has posted on its Web site similar settlement agreements settling charges involving the $466,000 settlement with Pulte Homes Inc., and its captive title reinsurance company Marquette Title Insurance Co.; a $456,000 settlement with KB Home and its captive title reinsurance company Westview Co.; a $66,000 settlement with Meritage Homes Corp., Meritage Homes of California Inc., Meritage Homes of Nevada Inc., Meritage Homes of Arizona Inc., and their captive title reinsurance company Meritage Paseo Crossing LLC; an $84,000 settlement with The Ryland Group Inc. and it’s captive title reinsurance company Cornerstone Title Insurance Co.; and a $52,000 settlement with Technical Olympic USA Inc. (TOUSA Homes) and its captive title reinsurance company Universal Land Title Inc.
A year ago, HUD announced $1.95 million in similar settlements with Shea Homes Inc., William Lyon Homes and Fulton Homes (see Inman News story).
In July 2006, HUD announced $1.6 million in settlements with a lender and two home builders. CitiMortgage Inc. and its captive title reinsurance company, Chesapeake Reinsurance, agreed to a $650,000 settlement; M.D.C. Holdings Inc., some of its Richmond American Homes home-building subsidiaries and AHT Reinsurance agreed to pay $675,000; and WL Homes, which does business as John Laing Homes, a California and Colorado builder, agreed to a $305,000 settlement.