Marketing services agreement: A kickback by another name

While Affiliated Business Arrangements (also known as a The Legal Kickback) between settlement companies and real estate brokers have been much discussed and criticized over the years as anti-consumer, they continue to permeate the market.

Here is yet another kickback scheme – the Marketing Services Agreement (MSA), which is becoming more popular among real estate brokerages (i.e., brokers) and self-described "independent" title companies, also referred to as the broker's Preferred Partner.

Here’s how it works. Example: Acme Title Co. approaches Beta Real Estate Co. and offers to pay $20,000.00 per year to Beta for the following so-called services:

  • Acme Title Co. to be designated the exclusive preferred settlement service provider by Beta
  • Acme Title Co. logo and website link to be prominently displayed on Beta’s website
  • Acme Title Co. signage and marketing materials to be placed and distributed with Beta’s sales offices and on for sale signs
  • Acme Title Co. settlement services offer to appear on all Beta’s home listings
  • Beta grants Acme Title Co. the exclusive right to make monthly presentations to its real estate agents
  • Beta to place Acme promotional materials in all buyer packets presented by Beta to its clients

These "services" would be better described as "privileges" since the truth is that Acme Title Co. is buying exclusive access to the referral sources (i.e., Beta’s sales agents). It’s an effort to gain "face-time" with those sales agents who are in the best position to refer homebuyers to the title company.

The consumer, in this case a homebuyer, is most likely to use the title company recommended by the sales agent and may never know or realize that she has a right to shop around and choose her own title company.

At the end of the day, this is little more than a kickback from a service provider to a referral source in exchange for access. Is it legal?

Most MSAs are not administered in a legal manner. RESPA Section 8 prohibits a Broker from receiving a thing of value for a referral. Thus, if the marketing fee ($20,000 per year in this example) is based on anything other than the actual value of the marketing services performed by the Beta on behalf of Acme, then the arrangement would be in violation of federal law.

In other words, would an independent consultant value Beta’s efforts to market and promote Acme’s services at $20,000. The answer is most likely "NO."

Ideally, the Consumer Financial Protection Board (CFPB), with oversight of RESPA compliance matters and its army of nearly 1,000 employees, will better scrutinize these Marketing Services Agreements and Affiliated Business Arrangements. As its name implies, the CFPB was established to protect the consumer.

Let’s hope the CFPB follows its charter.

Borrower pays $2,000 for in-office closing?

Your refinance loan application has just been approved and your lender asks if you have a preference in selecting a title company. The borrower (name redacted) in the HUD-1 you see below answered "No" to this question and was taken for a ride – so to speak.Closing Doc

In fact, by allowing his lender to select the title company, this borrower paid $5,366.50 for title charges compared to $3,338.20 had he selected Federal Title as his title company. He overpaid by $2,028.30 simply by allowing his lender to select the title company.

This is a classic example of what routinely happens to borrowers when they defer the selection of service providers to their "trusted advisor."

In this case, TRG Settlement Services, LLP, is a national settlement service provider operating through multiple affiliations (i.e., kickback arrangements) with large national lenders. Because they share their profits with your lender, the lender has incentive to steer you to them.

By offering in-home or in-office closing services, the borrower is often persuaded to use the lender’s affiliated title company.

The question for this borrower: Was it worth over $2,000 to have a notary conduct the closing at your office? Is such convenience really worth such a price?

Shop title insurance providers, save on closing costs

The Internet makes it so easy for consumers to find the best prices on all kinds of goods. Why would anyone willingly pay retail price when it's so easy to point-and-click your way to a bargain?

If we were talking about furniture or household electronics, it would seem like a no-brainer. But because it's title insurance – and title insurance is a pretty wonky subject – so many consumers seem complacent to let someone else do the shopping (or steering) even if it does wind up costing them hundreds or even thousands more at the closing table.

At Federal Title, we're trying to get the word out to consumers (shopping is easy, saving is awesome), so we partnered with our friends at the Better Business Bureau to produce a television commercial that will air on CBS for the rest of this month.

Happy birthday, REAL Credit™

This month, Federal Title & Escrow Company’s innovative REAL Credit™ will celebrate 10 years of providing substantial closing cost savings to home buyers.

Ten years ago, against the pressures of sharing our revenues with real estate firms, we bucked the trend, remained an independent settlement service provider, and decided to give the money back to the home buyer instead of the referring real estate firm. We named it the REAL Credit™.

While most of our competitors, at the expense of the home buyer, were jumping into bed with referral sources through Affiliated Business Arrangements, Federal Title got busy figuring out a way to reward the home buyer instead of the referral sources. Seems only fair – right? I mean, after all, it’s the home buyer who pays the costs, not the referring real estate firm.

The REAL Credit™ has served over 20,000 home buyers during its ten years, saving home buyers over $8 million dollars.

Let me repeat, unlike most other title companies, Federal Title has shared over $8 million of its revenue with home buyers instead of sharing that same $8 million with a referral source in exchange for the referral of business.

YES, it’s legal.

Our competition, most of who are beholden to their affiliated referral partners and, as a result, cannot compete with the costs savings realized by home buyers using the REAL Credit™, continue to spread falsehoods to real estate agents and others within the marketplace that the REAL Credit™ is somehow illegal.

It is not illegal.

The respective insurance commissions for DC, Maryland, and Virginia have all reviewed the REAL Credit™ and given it a “Thumbs UP.” Not only is it legal, it’s the right thing to do for the consumer.

Combined with Federal Title’s advanced technology and superior customer service, the REAL Credit™, after 10 years, remains the most innovative and consumer-friendly approach to improving the title insurance industry.

Why is selecting an independent title company so important?

Two reasons basically. By selecting a title company that is not bound by what’s known as an Affiliated Business Arrangement, you eliminate potential conflict of interest and generally save money.

When buying a home, you will be working with three groups of people: a real estate agent, mortgage lender and your "settlement team."

Click beyond the jump to keep reading.


  • Ways to save at closing

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  • What are closing costs?

    The real estate closing process involves loan steps, legal steps and title steps.

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  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

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