Tennessee builders to pay $226,000 in kickback settlement
Agency says builders paid for services not performed

Monday, December 19, 2005
Inman News

Nine Tennessee home builders will pay $226,000 to the U.S. Treasury in a settlement with the Department of Housing and Urban Development for allegedly getting kickbacks from a Tennessee title company, HUD said today.

HUD claimed that the nine builders received payments from First American Title Co. for settlement services that were never performed. Such so-called sham affiliated business arrangements violate anti-kickback and unearned fee provisions of the federal Real Estate Settlement Procedures Act, known as RESPA.

The builders agreed to make a $226,000 payment to the U.S. Treasury and cease any further business operations involving the sham business affiliations, HUD said. The builders agreed to the settlement without admitting wrongdoing.

RESPA was enacted in 1974 to provide for the advance disclosure of closing costs and to prohibit kickbacks and excessive fees in the home-buying process.

"It's pretty obvious the law requires that when money changes hands in the mortgage transaction, actual service should be provided," said Brian Montgomery, HUD's assistant secretary for housing and FHA commissioner, in a statement.

"But there's a big difference between performing real work and creating sham business arrangements designed to mask illegal kickbacks and referral fees," Montgomery said.

Section 8 of RESPA prohibits a person from giving or accepting anything of value in exchange for the referral of settlement service business. It also prohibits a person from giving or accepting any part of a charge for services that are not performed.

HUD's investigation determined that First American paid the nine builders that make up Title Group Builders for certain title and settlement work they did not perform-services that were essentially provided by First American, HUD said.

HUD concluded that the nine companies were sham businesses that were paid to make referrals to First American in violation of RESPA.

In its settlement with HUD, the group of builders also agreed to have sufficient initial and operating capital to perform settlement services; to be staffed with employees who work for that entity; to comply with RESPA and HUD policy statements, according to HUD.

Finally, the group agreed to actively compete in the marketplace for title insurance business by actively seeking business from parties other than the builders, real estate agents, and mortgage brokers, or other settlement service providers that created the entity, HUD said.

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