By Brett M. Woodburn, Esq.
Over the years, many real estate brokers have developed their own title companies. There is a wide array of business models used to attract licensed agents to use the broker's title company - from offering agents ownership interests in the title company to "requiring" agents to use the affiliated title company. I have even seen provisions in the agreement of sale or addenda that identify what title company the buyers are going to use!
In almost all circumstances, the consumers are given a copy of some affiliated business disclosure form. But is it THE affiliated business arrangement disclosure that RESPA requires? If you are not using the exact form that is provided in Appendix D of RESPA today, I will give you 500,000 reasons why you need to change your practice.
RealtySouth is one of the largest real estate brokerages in the south, and it has an affiliated title company called TitleSouth, LLC. From 2011 to mid-2012, RealtySouth included a provision in the agreement of sale that provided, "Seller agrees to furnish Buyer a standard form owner's title insurance policy issued by TitleSouth, LLC, in the amount of the purchase price." In 2012, RealtySouth changed the language in the agreement to allow buyers to choose either TitleSouth, LLC, or "other" to provide their title services. RealtySouth consistently gave the consumers an affiliated business arrangement disclosure. Instead of using the form proscribed by RESPA, RealtySouth used a disclosure form that it developed internally.
What were some of the differences between the RESPA form and the form used by RealtySouth? RealtySouth's disclosure form: (a) did not use capital letters or some other means to highlight the consumer's right to choose their own title company; (b) did not highlight or set apart a separate statement informing consumers that they had the right to shop elsewhere for their title services; and (c) did include some promotional or marketing language designed to influence consumers by promoting TitleSouth. For example, the disclosure said TitleSouth provides "superior service, value, and convenience"; TitleSouth's "charges are reasonable and competitive with the amounts charged by others for the same services;" and due to the "competitive, reasonable rates, coupled with the smooth and efficient manner in which transactions will be handled, [TitleSouth is] in a unique position to provide you with exceptional value and service in handling your transaction."
The Consumer Finance Protection Bureau ("CFPB") investigated RealtySouth. Immediately, RealtySouth began using the "proper" affiliated business arrangement disclosure form. The CFPB fined RealtySouth $500,000 for using a disclosure form that the CFPB determined did not adequately disclose the consumers' rights. The CFPB also gave the title company thirty (30) days to provide copies of all settlement sheets for 2011 and 2012 so that CFPB could identify and contact the consumers who used TitleSouth for title services.
Oftentimes, government-drafted notices and disclosures are awkwardly worded or are cumbersome for a consumer to read. At least where RESPA is concerned, resist the urge to "simplify" or "clarify" the language in the disclosure form unless you want to have a rather unpleasant conversation with the CFPB.
Mr. Woodburn is an attorney with Caldwell & Kearns, P.C., which serves as general counsel to PAR. A portion of his practice is dedicated to providing advice and counsel to real estate licensees and representing and defending real estate salespersons and brokers in civil lawsuits and licensing claims across the Commonwealth. He routinely counsels real estate professionals as one of the voices of the PAR Legal Hotline.