Settlements point to ongoing abuses of law against kickbacks for referrals

7/24/2011

WASHINGTON -- Despite federal law prohibiting kickbacks among brokers and others in home real estate deals, recent legal settlements suggest plenty of action is under way at the fringes of the law, enabled by technology and creative financial arrangements.

Take the settlement July 11 between the Department of Housing and Urban Development and Fidelity National Financial, the country's highest-volume title insurance and settlement services company.

HUD charged that Fidelity and its affiliates have "engaged in a widespread and years-long campaign to pay real estate brokers kickbacks for the referral of real estate settlement services, including home warranties and title insurance."

Fidelity denied any wrongdoing but agreed to pay $4.5 million.

HUD says participating realty brokers were given access to a Web-based portal created by Fidelity that automates home real estate transactions "from listing to closing" and also enables agents to choose title insurance and other services for the transaction.

Realty brokers signed "sub-license agreements" with Fidelity subsidiaries to enable them to be listed on the portal as providers of services.

Then, HUD says, Fidelity subsidiaries paid participating real estate brokers for referrals of customers they provided.

In another case, HUD settled for $3.1 million with Prospect Mortgage LLC, a national home lender based in Sherman Oaks, Calif.

According to HUD, Prospect "created sham affiliated business arrangements for the purpose of paying improper kickbacks" to real estate brokers, mortgage brokers, and other service providers.

Prospect denied that it violated federal law but agreed to dismantle the network it set up to pay the referral fees alleged by HUD.

The network involved creation of large numbers of limited liability companies that purported to be legitimate joint ventures with Prospect but that in fact were shells that "had little or no employees, capital and/or offices," HUD says.

"In return for the referral of business," the agency said, "Prospect shared 50 percent of its profits with these entities which HUD determined were not bona fide."

Although homeowners are not likely to detect some of the most sophisticated referral games being played behind their backs, they have no obligation to pay extra fees in home purchases or sales if nobody is providing additional services.