Home Builder Ends Investigation Denver home builder has agreed to pay $675,000 to end its involvement in an investigation of the title-insurance arrangements of home builders and lenders throughout the country
RISMEDIA, June 24, 2006—(MCT)—Denver home builder MDC Holdings Inc. has agreed to pay $675,000 to end its involvement in an investigation of the title-insurance arrangements of home builders and lenders throughout the country.
CitiMortgage Inc., the mortgage affiliate of financial giant Citigroup, and WL Homes, which does business as John Laing Homes, were other participants in $1.6 million worth of settlements announced Tuesday by the U.S. Department of Housing and Urban Development.
The agreements represent the latest chapter in an investigation Colorado Deputy Insurance Commissioner Erin Toll launched early last year into kickback arrangements and other illegal practices within the title-insurance industry.
Her initial probe prompted the HUD investigation and has resulted in title insurers nationwide agreeing to pay almost $50 million to home buyers. The HUD settlements, which do not represent restitution, will go into federal coffers.
The Real Estate Settlement Procedures Act prohibits parties in a real-estate transaction from receiving payment for referrals.
"You ought to be paid if you provide a service, and a referral is not service," HUD spokesman Brian Sullivan said.
To get around the law, firms created their own title-reinsurance companies that shared premiums with the firms in return for referring businesses to them.
Reinsurance is usually sought when insurers face large and unpredictable losses. But title insurance is considered a low-risk business, with payouts at around 5 percent of premiums collected.
As a result, home builders and lenders with captive title- insurance subsidiaries were able to pocket millions of dollars in premiums.
The companies that settled with HUD didn't admit or deny wrongdoing and cooperated with the investigations, Sullivan said.
MDC said it established and maintained its title-reinsurance company within the guidelines set by RESPA.
"HUD has made no finding of violations of RESPA with respect to these programs. Nonetheless, MDC Holdings Inc. and AHT Reinsurance Inc. entered into the settlement with HUD to resolve this matter in a timely manner without additional expense," the company said in a statement.
AHT Reinsurance voluntarily stopped writing title-reinsurance policies in early 2005, MDC spokeswoman Alison Schuller added. MDC says none of the title-reinsurance policies in question covered homes in Colorado, where it builds under the name Richmond American Homes.
HUD has taken the position that title reinsurance is not needed in most home purchases.
"We see there is no real reason for title reinsurance in single-family homes," Sullivan said.
Insurance regulators lack the jurisdiction to go after the home builders, real-estate agents and mortgage lenders who took payments from title insurers.
The Colorado Division of Insurance has submitted to HUD more than 45 firms it knows about that were involved in captive title-reinsurance schemes.
"I can only do something about those giving the kickbacks," Toll said. "Hopefully, this is just the beginning for HUD."
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