HAVE YOU BEEN SITTING ON THE FENCE WAITING for HUD to resolve the decade-long debate over controlled business arrangements and computer loan originations?
During the mid- to late 1980s, many national real estate brokerage firms formed controlled business arrangements. It became more common for Realtors to own mortgage companies, title companies, relocation firms, escrow companies and property insurance agencies.
As for controlled business arrangements, two roadblocks in earlier HUD informal advisory opinions were removed.
These two changes in the RESPA rules gave distinct advantages to controlled business arrangements. As a result, sponsors of CBAs were free to provide incentives to both employees and customers to encourage the use of affiliated settlement-service providers.
Sponsors of controlled business arrangements most likely will view HUD's curtailment of the employer-employee exception as an intrusion by the government into employers' internal compensation practices.
* New controlled business arrangements, referrals between controlled business affiliates, joint between independent settlement services providers and incentive payments to employees paid by their employers to encourage such referrals will become commonplace.
Especially vulnerable will be those who fail to provide all required disclosures of mortgage broker and CLO fees and of controlled business arrangements; those giving or receiving "naked" and only half-clothed kickbacks; and those in the title insurance industry.
Regarding controlled business arrangements
, HUD's stated position is that "...
By way of example, HUD offers the following situation from its Policy Statement on Sham Controlled Business Arrangements, taken from the Federal Register (see www.hud.gov/offices/hsg/sfh/res/res0607c.cfm).
When assessing whether such an entity is a bona fide provider of settlement services or is merely a sham arrangement used as a conduit for referral fee payments, HUD balances a number of factors in determining whether a violation exists (see HUD's Policy Statement on Sham Controlled Business Arrangements).
Here is an example given by HUD, in its Policy Statement on Sham Controlled Business Arrangements, of what is permitted.
According to published guidance in its Policy Statement on Sham Controlled Business Arrangements, HUD would consider this an example of an entity that is a bona fide provider of settlement service business rather than a sham arrangement.