States Pick Up RESPA Guidelines Where Feds Leave Off
More tips on RESPA law, guidelines and violations for real estate agents and loan originators from former HUD investigator and RESPA expert, Dr. Gary Lacefield.
Dr. Lacefield discusses the decision by Ohio’s state government to address sham business operations. In August, the Ohio Department of Insurance released a draft rule that would tighten the state’s guidelines to address the proliferation of these types of sham arrangements created for the purpose of paying for the referral of business.
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States Pick Up Where Feds Leave Off
Several states have started their own initiatives to address RESPA related issues regarding sham Affiliated Business Arrangements. These actions by the states are the direct result of the lack of consistency and ubiquity of the federal remodeling of RESPA.
In September of this year, the Ohio Department of Insurance (DOI) filed a class action lawsuits in Ohio alleging sham affiliated business arrangements (AfBAs). The Ohio Department of Insurance (DOI) in late August released a draft rule that would tighten the state’s governing guidelines specifically to address the proliferation of these types of arrangements that clearly were created for the purpose of paying compensation for the referral of business..
The current law, Ohio Revised Code Section 3953.21 (B), allows “prohibited” entities, such as real estate agents, mortgage brokers, homebuilders or others, to own a minority equity interest of 49 percent or less in a title insurance agency. Prohibited entities are companies specifically that are settlement service providers or companies in a position to refer settlement services.
The new draft rule would tighten the restriction to limit “prohibited” entities to have no more than 10 percent of a title company’s voting securities or interests.
In addition, the draft rule incorporates HUD’s 10-point test for determining the legitimacy of sham AfBAs under RESPA into the state law and specifies that “the only thing of value that can flow from such an arrangement, other than permissible payments for services rendered, is a return on ownership interest.”
Under the draft rule, “a return on ownership interest” may not include:
“Any payment which has, as a basis of calculation, no apparent business motive other than distinguishing among recipients of payments on the basis of the amount of their actual, estimated or anticipated referrals; any payment which varies according to the relative amount of referrals by different recipients of similar payments; or a payment based on ownership, partnership or joint venture share which has been adjusted on the basis of previous relative referrals by recipients of similar payments.”