Marketing Service Agreements may be more dangerous than Affiliated Business Arrangements

Federal Title is an independent title company, which means that, unlike most of our competitors, we do not enter into Affiliated Business Arrangements ("ABAs") or Marketing Service Agreements ("MSAs") with lenders and/or real estate agents. 

An ABA is an arrangement where someone who is in a position to refer settlement business has an affiliate relationship with or an ownership interest in a provider of settlement services and refers business to that provider. An example of this would be a real estate brokerage that has part ownership of a title company and refers business to the title company.

ABAs are permitted under the Real Estate Settlement Procedures Act of 1974 ("RESPA") as long as certain requirements are met.

An MSA is an arrangement under which a settlement service provider, such as a real estate broker, agrees to market and promote another provider’s services, such as that of a title company, in exchange for payment. MSAs are viewed as falling under a provision in RESPA that allows for "the payment to any person . . . for services actually performed."

MSAs are becoming more and more popular amongst real estate brokerages and title companies here in the DC area.

We think that these types of arrangements are bad for consumers. Many times homebuyers are not adequately made aware that choosing a title company is their choice. Second, when a Realtor refers their client to the "in-house" affiliate title company, chances are good the client will pay more in settlement fees, since they are not shopping for title services. Third, the affiliate title company is more likely to turn a blind eye and insure over potential title or marketability issues relating to the property, because the affiliate title company’s allegiance extends to the referral source.

We are not alone in our belief that these arrangements are bad for consumers. Consumer advocate groups, such as CAARE, have spoken out against ABAs.

Moreover, the Consumer Financial Protection Bureau ("CFPB"), the government agency that is now responsible for policing RESPA violations on behalf of consumers, has been focusing on ABAs. It recently entered into a settlement agreement with a Texas homebuilder and lender regarding the alleged violation of RESPA rules with respect to ABAs.

In many cases, ABAs are merely shams that operate to allow for payment for the referral of business, which is illegal under RESPA.

What about MSAs? How do they fit under RESPA? In some ways, they may be even more dangerous for the consumer than ABAs. One of the requirements for ABAs under RESPA is that the consumer must be informed in writing of an affiliated business arrangement. In contrast, there is no requirement under RESPA that an MSA be disclosed to the consumer. And MSAs, just like ABAs, can operate as shams that allow for the improper funneling of referral fees.

A federal class action lawsuit filed in March of this year in the U.S. District Court for the District of Maryland sheds some light on these arrangements.

In that lawsuit the plaintiffs allege that a title company paid a real estate brokerage as much as $12,000 a month in exchange for referrals under a sham MSA that was not disclosed to the plaintiffs, which resulted in depriving the plaintiffs of competition between settlement providers.

The plaintiffs were referred to the title company by their real estate agent and used the title company for their home purchase closing. The lawsuit seeks $11.2 million in damages against the real estate company, the real estate brokerage, the real estate agent, the title company and the president of the title company.

With all of the potential dangers of MSAs, you can expect that they will be reviewed by the CFPB in the near future. If you are a Realtor, would your broker’s MSA survive the CFPB’s scrutiny? If you are a homebuyer, did your Realtor just refer you to a title company with whom they have an MSA?

Understanding 4 types of property surveys

To determine the exact location of her property lines, Dianne hired a surveyor to
At Federal Title and Escrow, we require a property survey for single family home purchase closings. Homebuyers frequently ask us why it is necessary to have a survey.

The main reason we obtain a survey is that the lender providing the purchase financing requires that we issue a lender’s title insurance policy that does not take exception to survey matters, and in order to do that, we need to review a survey.

My recent post discussing encroachments onto neighboring property is an example of how important obtaining a survey can be from a homebuyer’s perspective.

There are several different types of surveys. Click beyond the jump to read about each one.

6 real estate apps that make you look like a genius

6 real estate apps that make you look like a genius
Want to look smart in front of your clients? It’s gonna take a lot more than just having a smart phone with access to email and Internet. You need to know what real estate apps can increase your productivity, expand your networks and, well, make you look like a tech genius in front of your clients.

The desire for transparency in the real estate market was brewing long before the housing market collapse, but now more than ever your clients demand access to instant information – so much so that they are sidestepping real estate agents with growing frequency. To stay top of mind and on the cutting edge, check out these awesome apps.

Find homes faster with Homesnap

This innovative – “fast and easy-to-use application,” according to the Los Angeles Times – is probably the coolest way to shop for homes as well as one of the smartest ways real estate agents can market themselves. What’s makes this app so special?

Well, for starters Homesnap can pull up all kinds of information about any house or condo when you snap a picture of the property using the app’s camera. How cool is that? And creating a profile within the app allows you to keep a diary of your snaps in an Instragram-like photo feed.

Beyond the photo feed, real estate agents will also appreciate the client-sync feature. It allows them to import their clients’ contact information then see their snaps in real time while the app adds the agent’s branding to every snap. Clients can reach out to their agent in just one tap to schedule a showing or get more info on the property.

The developers of Homesnap recently launched a Foursquare-esque check-in feature that lets agents “check in” to houses. By having the most check-ins, an agent becomes the neighborhood’s equivalent of the Foursquare “mayor.” Potential buyers see this as they use the app to search for homes, increasing the agent’s credibility and visibility at the same time!

To get the word out about this new feature, the Homesnap team has announced a contest for real estate agents.

I just bought a property in Maryland. How do I qualify for the Homestead Tax Credit?

If you just bought a property in Maryland, there is nothing that you need to do right now to qualify for the Maryland Homestead Tax Credit.

The property taxes you pay are calculated based upon the assessed value of your property. If the assessed value goes up, your property taxes go up.

The Maryland Homestead Tax Credit operates to limit how much your property taxes can go up each year, if you live in the property as a principal residence. A homeowner pays no property tax on the amount of any increase of the assessed value that is above a cap.

The cap is the lower of 10% or the number set by your local government. Maryland’s State Department of Assessments and Taxation (SDAT) has an example of how this works on their website.

As a new purchaser of a property in Maryland, SDAT will mail you a homestead application when the new deed is recorded and their records have been updated. After you receive the application, you can mail it in, fax it in, or file electronically. Once you have filed the application, you should check the status with the SDAT Real Property Data Search page.

For additional information on the application process, see Joe’s post "MD homestead tax credit eligibility application deadline is Dec. 31."

Close It! for iPad ready for download

Free mobile app calculates cash to close for homebuyers and cash in pocket for home sellers with great accuracy

Close It! for iPad ready for download

Ever wonder what your total cash to close would be to buy your home? Or how much money you will pocket from the sale of your home? Now there's an app for that.

"Close It! is like Turbo Tax for real estate transactions," said Todd Ewing, president of Federal Title who first conceived of the app last summer. "And the results are accurate within one-tenth of 1 percent on average."

Download the app now >>

Close It! is the first mobile app that produces a complete, picture of cash to close and monthly mortgage payments for homebuyers and cash in pocket for home sellers. It's free to download for iPad.

Title professionals across the country have used technology like this in-house for years now, but Close It! is the first app that makes it easy for homebuyers and sellers to produce a HUD-1 Settlement Statement – such as what would be reviewed and signed at the closing table – right from their mobile device.

Getting started with the app is as easy as entering a purchase or sales price. Then fine tune the results on a live, dynamic worksheet and instantly narrow down cash to close or cash in pocket with great accuracy.

Whether you're shopping for homes or getting ready to sell, calculate your costs right on the spot with Close It!

  • Ways to save at closing

    Title charges are the largest chunk of closing costs and can vary by hundreds of dollars.

    Learn more

  • What are closing costs?

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

    Learn more

  • What's title insurance?

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

    Learn more

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.