HUD and the Department of Justice continued their Respa enforcement crackdown by filing suit against one title company and reaching settlement agreements with 58 Philadelphia real estate brokers, title companies and attorneys for Respa violations. But while both agencies are turning up the heat on investigation into controlled business arrangements, the growing cry from the industry is that their actions are both superficial and unnecessary.

The 58 settlements netted approximately $500,000 in refunds to consumers, consumer education and penalties. Both HUD and Justice alleged that those companies either received or paid illegal kickbacks in exchange for title insurance referrals. Most of the settlements ranged from a few hundred to a few thousand dollars, HUD said.

Some settlements were much more substantial, however. One Philadelphia abstract company has agreed to refund $54,000 to home buyers, and another, a Bucks County title company, shelled out a $100,000 penalty as well as another $25,000 to the Pennsylvania Attorney General's Bureau of Consumer Protection for use in educating consumers about purchasing a home.

HUD and Justice have spent two years investigating violators, and saw fit to agree to settlements with all but one. In that sole case, U.S. vs. The Preferred Abstract Corp., which is a company trading as The Philadelphia Preferred Abstract Corp., the Justice Department complaint alleges that since about October 1990 Preferred has had an agreement with Commonwealth Land Title Insurance Co. of Philadelphia to receive between 25% and 35% of the premium for title insurance for any transaction in which it solicited a home buyer to buy title insurance from Commonwealth.

For almost a year after signing and implementing that agreement, Preferred - a Maryland-based title company - had no employees and no office $100,000 in referral fees for title business directed to Commonwealth from a real estate company related to Preferred Abstract - Prudential Preferred Properties Inc., the suit alleged.

Before each real estate settlement for transactions referred by Prudential, Commonwealth allegedly sent copies of the title report to Prudential where its conveyance department reviewed the policy and referred any title issues to its real estate sales associates. Prudential would then allegedly charge home buyers a conveyance fee of $125 if the transaction was not for FHA or VA mortgages. In those instances, the complaint said, the conveyance fee was no more than $50.

The suit, which was filed April 18 in the U.S. District Court of Philadelphia, seeks an injunction to prevent the retention of illegal fees and profits by Preferred and that those fees be collected and discharged by the court.

HUD initiated its pilot program for these Respa investigations of controlled business arrangements in Philadelphia early in 1992. They were joined by the U.S. attorney's office later in the year.

David Williamson, HUD's chief of Respa enforcement, told Mortgage Marketplace the department wanted "to put a few people in jail over the next couple years so [the industry] will understand they cannot get out of violating the law." (see Mortgage Marketplace, April 4). Williamson also said the success of the program has encouraged states attorneys general in Florida, Minnesota, New Jersey and Virginia to start similar programs. Limited programs have also begun in Texas and California.

Attorneys dealing in Respa issues believe HUD is conducting superficial investigations. "If 58 are caught, there are 5,000 doing it," said Cornelius O'Brien, of the Philadelphia-based law firm of Blank Rome Comisky & McCauley. "Was the consumer harmed? No - because the rates are fixed and the kickbacks were paid out of the insurance companies' pockets."

O'Brien said he questioned whether the cost of title insurance increased to consumers as a result of the practice. "In Pennsylvania, title companies can pay commissions to real estate brokers and lawyers," he said.The Philadelphia Experiment HUD and the Department of Justice decided two years ago to begin investigating and cracking down oviolations of the RealEstate Settlement Procedures Act, specifically apparently widespread violations of a Respa provisionprohibiting controlledbusiness arrangements. The agencies chose Philadelphia as the place to engage the pilot investigatorprogram, and the resultwas 58 separate settlement arrangements with title companies, real estate brokers and attorneysin Philadelphia's greatermetropolitan area. Agency SettlementAaron Real Estate $4,643Blough Realty $962Claude Boni $1,009Cahill Realty $1,306Cardinal Abstract Co. $641Century 21-Brody & Titman $3,903Century 21-Clarke Real Estate $5,654Century 21-J.V. Johnson $2,467Century 21-Sendzyk $1,316Century 21-Ralph Smith andGeorge Naylor $4,538Chapman Agency $5,939Chelsea Title & Abstract $6,000Davidoff & Cohen $1,094Joy Dickstein $730Executive Realty $4,920Feldman Real Estate $1,206Gaev Realtors $8,752Joseph Gaul Real Estate $911Gary Horowitz $4,117Mary Ingrassia $4,708Brian Keyes $2,884Lamb Real Estate $1,000Lee Agency $2,885Levin & Cooper $673T.J. McCarthy Realtors $1,435Thomas McGlaughlin $3,793John D. O'Keefe $412People's Abstract $7,500Edwin N. Popkin $758Professional Abstract $1,500Real Estate Corner $816Realty World/Carberry $1,000Re/Max Associates $9,000Re/Max Affiliates $3,193Re/Max Metropolitan $5,600Salkin Realty $1,724L.F. Sauers Inc. $1,898E. Paul Sandidge $1,469Michael Singer $1,679Larry Snyder $7,471Spectrum Realty $1,030Statewide Title $7,500Stuckert & Yates $1,992Harry D. Toben $5,080Universo Real Estate $3,800

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