Not On Our Watch! - Affiliated Business
Arrangements
What is an AfBA? It is nothing but one of the biggest real
estate consumer rip-offs of the century. For those of you
who don't know the lingo, an Affiliated Business Arrangement
(AfBA) or joint venture is an arrangement in which a person
who is in a position to refer business in connection with
a real estate transaction has an ownership or other beneficial
interest in a provider of settlement services and such person
refers or influences the selection of that provider. Let's
just call it what it is. A Controlled Business Arrangement.
Also, take note, that by law the referring party must give
an AfBA disclosure notice form to the consumer at or prior
to the time of referral. The disclosure must describe the
business arrangement that exists between the two providers
and give the borrower an estimate of the second provider's
charges. However, no where does it say the split of revenue
that is given to each party.
To further understand the basis of an AfBA is to have insight
into the under-the-table games that are being played. There
are several forms of affiliated business arrangements. One
might work like this: a mortgage company, a builder, or a
Realtor and a title agency form a Limited Liability Company
(LLC) partnership to somehow provide title and settlement
services. On paper they appear to be an actual company. The
partners, invest practically nothing and receive profits based
on their individual shares. In reality, however, it might
be little more than a "shell" corporation designed
to funnel a steady stream of clients to their title agency
in return for a split of the profits.
This "steering" of business does not in any way
create "market competition" or provide value which
ultimately benefits both home buyers and sellers. These sham
entities are set up as just another way to pay referral fees
and "kickbacks" to mortgage lenders, builders and
Realtors at the expense of the consumer and in some cases
circumvention of the provisions of RESPA. This is just too
much. If you don't believe me, just take a peek at all the
RESPA
Settlement Agreements over the past few years between
all these affiliated business arrangements.
Where is the fiduciary duty? This lack of fiduciary duty
is spun to the public by the best marketing money can buy.
Consumers are subjected to these business arrangments for
no other reason than the "legalized" kickback itself.
The list of atrocities of overcharging, the padding of fees,
the extra "Junk" fees, the bait-and-switch games
and more importantly the issues of "conflicts of interest"
goes on and on.
However, if it sounds like we are anti-Realtor, were NOT.
There are just as many Realtors out there who deal with us
and feel the same way that we do! They also believe that the
current situation is wrong and needs to be fixed desperately.
These things make Realtors look bad and that is not right.
How can it save you money?
It can't. It won't. It wasn't designed too! For over the
last four decades the Ohio legislature prohibited affiliated
business arrangements and joint ownership's, related party's
and ventures of this kind, due to conflicts of interests,
however, after many years of pressure from million dollar
funded lobbyist groups, they finally caved in under pressure
and changed the law in 03-02-1999 under the House
Bill 214 that amended Ohio Revised Code section 3953.21
and 3953.26.
This was truly a travesty. Now, this has opened up a whole
new can of worms and only means bad news for the consumer,
as you may read some of the other articles below. You may
also ask, "Who is controlling all of this? The US Department
of Housing and Urban Development
(HUD) and more specifically a federal statute Section
8 of the Real Estate Settlement Procedures Act (RESPA)
are in charge of policing and enforcing these new convoluted
affiliated business arrangements using laws that were written
in 1974. The RESPA statute governs the real estate settlement
process by mandating all parties fully inform borrowers about
all closing costs, lender servicing and escrow account practices,
business relationships between closing service providers and
other parties to the transaction. The statute also covers
mortgage loans on one-to-four family residential properties
which include most purchase loans, assumptions, refinances,
property improvement loans, and equity lines of credit. Minor
revisions were again made in 1976, 1983 and 1992.
As an aside to this, since title insurance premium fees are
regulated by the Ohio
Department of Insurance, a question could certainly be
asked, "Is the consumer possibly being overcharged?".
Unlike the old days, when the profits of a title agency would
be reinvested back into it's employees, quality control, training,
future growth, technology and expansion. Instead, profits
are being squandered to partners that are merely there to
get a check. This self-righteous behavior has been disguised
with a sickening sanctimonious smile. Someone please tell
me how consumers stand a chance?
.
The good, the bad, the
ugly!
The long and the short of it. How can I as a consumer make
sure that I don't fall into this trap? Easy. Ask the people
you deal with if they are operating under an affiliated business
arrangement. If they are, they will make it sound like it
is only a small ownership percentage and not a big deal, but
it can amount to big dollars to them. Which is OK, but it's
your money! They will also say that they provide a "one-stop-shop"
for convenience and to provide better value to the consumer.
Read between the lines, this is hogwash. This "talking"
out the side of their mouths is a walking contradiction and
it would appear that if these AfBA’s have all this extra
money to share, why can’t the title insurance premium
dollars and closing costs be lower for the consumer? These
same people are going to raise your closing costs by hundreds
of dollars - and they have the audacity to hope you don't
mind. This was recently discussed in the report done for the
General
Accounting Office (GAO) - Actions Needed to Improve Oversight
of the Title Industry and Better Protect Consumers.
It is one thing to have legitimate business relationships
versus those based on "conflicts of interests".
Federal law guarantees you the consumer the right to choose
your title insurance settlement provider. If you don't wish
to deal with Eagle Land Title, we will miss you, but that
is fine. However, don't let another party steamroller you
into padding their pockets. As stated before, we have nothing
to offer but excellent customer service, the greatest standards
of professionalism, integrity, and a pledge to handle every
transaction with the attention that you deserve! The bottom
line is that we are different because we want to be.
Below is a few of the articles that have recently been floating
around regarding the ABA problem. For more articles look under
our Consumer News section of the website:
