As requested by the Department of HUD, attached is a copy of a letter from
the Department dated June 19, 1996, and a copy of the following:
Real Estate Settlement Procedures Act Interpretation
Statement of Enforcement Standards
Title Insurance Practices in Florida
As in the past, questions concerning RESPA matters should be directed to the
National Legal Department in Houston.
U.S. Department of Housing and Urban Development
Office of the Assistant Secretary for Houston
Federal Housing Commissioner
Washington, D.C. 20410-8000
June 19, 1996
Mr. Charles Birmingham
Vice President and State Counsel
Stewart Title Guaranty Company
3401 West Cypress Street, Suite 202
Tampa, Florida 33607
Dear Mr. Birmingham:
On September 21, 1995, the Department of Housing and Urban Development sent
your company a document entitled "Finding of HUD's Investigation
of Florida Title Insurance Companies and Statement of Enforcement Standards." Subsequently,
on November 8, 1995, HUD staff met with members of the Florida title insurance
industry. Based on those discussions and input from Florida state officials
and others, we are enclosing a "Statement of Enforcement Standards: Title
Insurance Practices in Florida", which provides additional guidance to
the September Statement and notice of HUD's enforcement standards. We
request that you carefully review this document and provide copies to your
With the issuance of this Statement the Department has elected to concentrate
on post September 1995 compliance, and, therefore, is closing its file on the
investigation of the earlier activities of your company. In doing so, the Department
is making no judgment on those practices and reserves the right to reinstitute
its investigation, if necessary, as part of future enforcement action.
We are continuing to work closely with officials from the State of Florida
and will continue to closely monitor compliance with the Real Estate Settlement
Procedures Act by the title insurance industry in Florida. While we are hopeful
of voluntary compliance by underwriters and agents in Florida, the Department
is prepared to take appropriate enforcement action if necessary.
Thank you for your anticipated cooperation.
Nicolas P. Retsinas
Assistant Secretary for Housing
Federal Housing Commissioner
Real Estate Settlement Procedures Act Interpretation
Statement of Enforcement Standards:
Title Insurance Practices in Florida
This Statement deals specifically with issues and practices that HUD reviewed
in the State of Florida although its general principles may apply by analogy
to other geographic areas.
Section 8(a) of the Real Estate Settlement Procedures Act (RESPA) prohibits
any person from giving or accepting any fee, kickback, or thing of value for
the referral of settlement service business involving a federally related mortgage
loan. 12 U.S.C. §2607(a). Section 8(b) of RESPA prohibits any person from
giving or accepting any portion, split or percentage of any charge made or
received for the rendering of a settlement service other than for services
actually performed. 12 U.S.C. §2607(b).
Two exemptions to Section 8's prohibitions against compensated referrals
in RESPA covered transactions involve payments for title insurance services
actually performed. Section 8(c)(1)(B) specifically exempts payments of a fee "by
a title company to its duly appointed agent for services actually performed
in the issuance of a policy of title insurance". A more general provision,
Section 8(c)(2), exempts the "payment to any person of a bona fide salary
or compensation or other payment for goods or facilities actually furnished
or for services actually performed". See also 24 C.F.R. §3500.14(g)(1).
In enacting RESPA, Congress stated its intent that Section 8 of RESPA did
not prohibit payments by title insurance companies for "goods furnished
or services actually rendered, so long as the payment bears a reasonable relationship
to the value of the goods or services received by the person or company making
the payment". H. Rep. No. 1177, 93d Cong., 2nd Sess. 1974 at 7-8 (hereafter "the
Report"). The Report stated that "to the extent the payment is
in excess of the reasonable value of the goods provided or services performed,
the excess may be considered a kickback or referral fee proscribed by Section
." The legislative history of Section 8(c)(1)(B) also noted that the "value
of the referral itself is not to be taken into account in determining whether
the payment is reasonable". Report at 8. The Report specifically elaborated
on the exemption for payments made by title insurance companies to duly appointed
agents for services actually performed in the issuance of a policy of title
insurance and stated:
Such agents, who in many areas of the country may also be attorneys, typically
perform substantial services for and on behalf of a title insurance company.
These services may include a title search, an evaluation of the title search
to determine the insurability of the title (title examination), the actual
issuance of the policy on behalf of the title insurance company, and the
maintenance of records relating to the policy and policy-holder. In essence,
the agent does all of the work that a branch office of the title insurance
company would otherwise have to perform.
Report at 8.
On November 2, 1992, HUD issued regulations giving guidance concerning title
agent services under RESPA. These regulations relied in part on the legislative
history. Section 3500.14(g)(3) (streamlined cite) [61 Fed. Reg. 13,232 (1996)
[to be codified at 24 C.F.R. 3500 et seq.]] provides an example of the type
of substantial or "core" title insurance agent services necessary
for an attorney to receive multiple fees in a RESPA covered transaction. It
For example, for an attorney of the buyer or seller to receive compensation
as a title agent, the attorney must perform core title agent services (for
which liability arises) separate from attorney services, including the valuation
of the title search to determine the insurability of the title, the clearance
of underwriting objections, the actual issuance of the policy or policies
on behalf of the title insurance company, and, where customary, the issuance
of the title commitment, and the conducting of the title search and closing.
Appendix B to the regulations provides additional guidance on the meaning and
covering of RESPA. Illustration 4 provides a factual situation in which an
attorney represented a client as an attorney and as a title insurance agent
and received fees for each role in a residential real estate transaction.
In its comments, HUD stated that the attorney was double billing his clients
because the work he performed as a "title agent" was work he
was already performing for his clients as an attorney. The title insurance
company was actually performing the title agent work and providing the attorney
with an opportunity to collect a fee as a title agent in exchange for referrals
of title insurance business. HUD also stated that for the attorney title
insurance agent to receive a separate payment as a title agent, the attorney
must "perform necessary core title work and may not contract out the
work". To qualify for a Section 8(c)(1)(B) exemption, the attorney
title insurance agent must "provide his client with core title agent
services for which he assumes liability, and which includes, at a minimum,
the evaluation of the title search to determine insurability of the title,
and the issuance of a title commitment where customary, the clearance of
underwriting objections, and the actual issuance of the policy or policies
on behalf of the title company". 24 CFR Part 3500, Appendix B, Illustration
In another example, Illustration 10, a real estate broker refers title insurance
business to its own affiliate title company. This company, in turn, refers
or contracts out all of its business to another title company which performs
all the title work and splits its fees with the affiliate. HUD stated that
because the affiliate title company provided no substantive services for its
portion of the fee, the arrangement between the two title companies would be
in violation of Section 8 of RESPA. This illustration showed that the controlled
business arrangement exemption did not extend to "shell" entities
that did not perform substantive services for the fees it collected from the
transaction. 24 CFR Part 3500, Appendix B, Illustration 10.
Section 19(a) of RESPA authorizes the Secretary to interpret RESPA to achieve
the purposes of the Act. Section 19(c) of RESPA authorizes HUD to investigate
possible violations of RESPA. During the course of its RESPA investigations,
HUD applies the facts revealed by the investigation to the statute and regulations
in determining whether a violation exists.
After receiving complaints of possible RESPA violations, in 1993 HUD initiated
an investigation of practices by some title insurance companies and some t
title insurance agents in the State of Florida. On September 21, 1995, HUD
sent a letter and document entitled "Findings of HUD's Investigation
of Florida Title Insurance Companies and Statement of Enforcement Standards" to
certain title insurance companies in Florida. In November, 1995, the Department
met with Florida title insurance companies and received input from them on
the enforcement standards.
This Statement provides additional guidance to the 1995 standards and, to
the extent there are any inconsistencies, supersedes those standards. In issuing
this Statement, HUD is not dictating particular practices for title insurance
companies and their agents but is setting forth the Department's enforcement
position for qualification in Florida for exemptions from Section 8 violations.
Generally, it is beneficial for title insurance companies and their agents
to qualify under the Section 8(c)(1)(B) exemption since HUD does not normally
scrutinize the payments as long as they are "for services actually performed
in the issuance of a policy of title insurance". (HUD will, however,
continue to examine payments to agents that are merely for the referral of
business such as gifts or trips based on the volume of business referred).
If the practices of a title insurance company or its agent do not qualify under
the Section 8(c)(1)(B) exemption, the company and the agent may still qualify
under 8(c)(2). Under an 8(c)(2) standard, HUD will examine the amount of the
payments to or retentions by the title insurance agent to see if they are reasonably
related to services actually performed by the agent.
For purposes of this statement, these terms shall mean as follows:
1."Title Insurance Agent" means a person who has entered into
an agreement with a title insurance company to act as an agent in connection
with the issuance of title insurance policies, and includes title agents, title
agencies, attorneys, and law firms.
2."Core title services" are those basis services that a title
insurance agent must actually perform for the payments from or retention of
the title insurance premium to qualify for RESPA's Section 8(c)(1)(B)
exemption for "payments by a title company to its duly appointed agent
for services actually performed in the issuance of a policy of title insurance".
In performing "core title services" the title insurance agent
must be liable to his/her title insurance company for any negligence in performing
the services. In considering liability, HUD will examine the following type
of indicia: the agency contract, whether the agent has errors and omissions
insurance or malpractice insurance, whether a contract provision regarding
and agent's liability for a loss is ever enforced, whether an agent is
financially viable to pay a claim and other factors the Secretary may consider
"Core title services" mean the following in Florida.
The examination and evaluation, based on relevant law and title insurance underwriting
principles and guidelines, of the title evidence (as defined below) to determine
the insurability of the title being examined, and what items to include and/or
exclude in any title commitment and policy to be issued.
The preparation and issuance of the title commitment, or other document, which
discloses the status of the title as it is proposed to be insured, identifies
the conditions that must be met before the policy will be issued, and obligates
the insurer to issue a policy of title insurance if such conditions are met.
The clearance of underwriting objections and the taking of those steps that
are needed to satisfy any conditions to the issuance of the policies.
The preparation and issuance of the policy or policies of title insurance.
The handling of the closing or settlement, where it is customary for title
insurance agents to provide such services and where the agent's compensation
for such services is customarily part of the payment or retention from
3."pro forma commitment" is a document that contains a determination
of the insurability of the title upon which a title insurance commitment or
policy may be based and which contains essentially the information stated in
Schedule A and B of a title insurance commitment (and may legally constitute
a commitment when countersigned by an authorized representative). A pro forma
commitment is a document that contains determinations or conclusions that are
the product of legal or underwriting judgment regarding the operation or effect
of the various documents or instruments or how they affect the title, or what
matters constitute defects in title, or how the defects can be removed, or
instructions concerning what items to include and/or to exclude in any title
commitment or policy to be issued on behalf of the underwriter.
4."Title evidence" means a written or computer generated document
that identifies and either describes or compiles those documents, records,
judgments, liens, and other information from the public records relevant to
the history and current condition of the title to be insured. Title evidence
does not, however, include a pro forma commitment.
B.Qualification Under Section 8(c)(1)(B)
To qualify for an exemption as an "agent" in Florida under Section
8(c)(1)(B), the payments to (or retentions by) a title insurance agent must
be "for services actually performed in the issuance of a policy of title
insurance". HUD interprets this language as requiring a title insurance
agent to perform core title services, as defined above, in order for title
insurance company payments to the title insurance agent to qualify for this
exemption. These "core title services" describe the type of services
that Congress stated would come within this exemption, that is, the type of
work that a branch office of the title insurance company would otherwise have
to perform in the issuance of a title insurance policy. Thus, as applied to
practices in Florida, for a title insurance agent to be able to retain the
maximum agency portion of the risk premium payment allowed under Florida law,
the title insurance agent must actually perform "core title services",
and generally may not contract out those services.
HUD recognizes, however, that there may be a legitimate temporary need (such
as surges in business) for the title insurance agent to contract out some part
of the core title services to an independent third party, not affiliated with
the title insurance company. In such cases, payments to these agents still
qualify under Section 8(c)(1)(B). However, there is no qualification for the
exemption if such contracting out of core title services is done on a regular
HUD also will not consider a title insurance agent to be an agent for purposes
of 8(c)(1)(B) and to have actually performed (or incurred liability for) core
title services where the service is undertaken in whole or in part by the agent's
insurance company (or an affiliate of the insurance company). For example,
in situations where the title insurance company provides its title insurance
agent with a pro forma commitment, typing or other document preparation services,
the title insurance agent is not "actually performing" these services.
As such, the title insurance agent would not be providing "core title
services" for the payments to come within the 8(c)(1)(B) exemption. However,
HUD acknowledges that title insurance companies often provide their own title
insurance agents with general advice and assistance on a particular unusual
question or concern on an individual case by case basis, and this type of assistance
would not affect the scrutiny of the payments to the title insurance agent
under this exemption.
Within the Section 8(c)(1)(B) context, moreover, title insurance companies
may provide their title insurance agents with title evidence, as defined above.
HUD acknowledges that title insurance companies have invested in title plants
and may sell title evidence to their title insurance agents. In doing so, however,
title insurance companies should not charge fees that reflect a payment for
the referral of the title insurance order. 24 CFR 3500.14(b). By this, HUD
interprets Section 8's requirements to mean that the title insurance
company must charge its title insurance agents a fee for title evidence which
is not a disguised referral fee given in exchange for the referral of title
business. It is evidence of a thing of value given for referrals if the title
insurance company is not charging fees for title evidence that cover its costs
of producing the title evidence or if the title insurance company charges less
for title evidence to be used for a commitment or policy issued on behalf of
the title insurance company than on another company's behalf.
In performing core title services, a title insurance agent is likely to use
employees. If a title insurance company supplies employees or has control over
or directs the work of employees of the title insurance agent, then the title
insurance agent is not actually performing the core title services. In such
a case, HUD will review the services provided by the insurance company to the
agent for sufficiency under Section 8(c)(2).
C.Qualification Under Section 8(c)(2).
If a title insurance agent does not perform "core title services" to
qualify for the exemption under Section 8(c)(1)(B) of RESPA, that agent may
receive payment for services actually performed pursuant to Section 8(c)(2),
so long as the payment is reasonably commensurate with the reduced level of
responsibilities assumed by the agent.
With respect to practices under Florida's title insurance statute, it
is HUD's enforcement position that it is difficult to justify the payment
(or retention) of a significant portion of the title insurance risk premium
to a title insurance agent who fails to perform and assume responsibility for
the title examination function. Likewise, in cases where the title insurance
company provides other services, or carries out the title insurance agent functions,
or provides or controls "part time examiners", HUD may scrutinize
the net level of retention realized by the agent to determine whether the agent's
compensation from the insurer reflects a meaningful reduction from the compensation
generally paid to agents in the area who perform all core title services. The
level of such reduction in compensation must be reasonably commensurate with
the reduced level of responsibilities assumed by such person for the services
provided and the underwriting risks taken. The value of a referral, however,
is not to be taken into account in determining whether the payment bears a
reasonable relationship to the services rendered. 24 CFR 3500.14(g)(2).
Under the RESPA regulations, when a person in a position to refer title insurance
business, such as an attorney, real estate broker or agent, mortgage lender,
or developer or builder, receives a payment for providing title insurance agent
services, such payment must be for services that are actual, necessary and
distinct from the primary services provided by such person. 24 CFR 3500.14(g)(3).
Thus, if an attorney is representing a consumer in a home purchase and also
acting as a title insurance agent, he or she may not receive duplicate fees
for the same work.
If a title insurance agent obtains third party services, such as the provision
of title evidence, and does not add any additional value to the service provided
by the third party, but increases the charge to the consumer for that service
and retains the difference, then HUD views the amount that the person retains
as an unearned fee in violation of Section 8(b) of RESPA. 24 CFR 3500.14(c).
/s/ Nicolas Retsinas, Assistant
Secretary for Housing, Federal