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Industry News

State withdraws bill to curb real estate partnerships

May 11, 2005

Insurance commissioner says further examination needed

By Janis Mara
Inman News

A Colorado bill that would limit affiliated business arrangements among real estate service providers has been postponed indefinitely, the state's new insurance commissioner said today.

Sen. Dan Grossman, D-Colo., sponsored the legislation, which was under consideration by Colorado's Senate. Affiliated business arrangements, or ABAs for short, are partnerships between real estate entities such as title insurance companies, mortgage lenders and real estate brokers.

David Rivera, the state's new insurance commissioner, said his office initially had decided to investigate ABAs but instead chose to focus on some specific complaints instead of doing an industry-wide probe. After talks with Grossman, the state senator decided to withdraw his bill, Rivera said.

The bill had proposed to prohibit title insurance agents and companies from earning more than 60 percent of their business from affiliated business referrals. Title companies also would have had to file annual reports confirming the amount of business generated by ABAs.

ABAs, which are possible under the Real Estate Settlement Procedures Act as long as certain guidelines are followed, have come under increased scrutiny in the wake of investigations into title insurance industry referral practices.

Erin Toll, the state's deputy insurance commissioner, is investigating nine real estate title insurers for alleged kickbacks. The investigation set off a national probe of title insurance companies in several other states. In the alleged schemes, title insurers agree to give about half of the premium on title insurance policies to captive reinsurance companies created by the other conspirators. The parent companies of those captives would in turn refer business to the title insurer.

Recently, Toll began investigating ABAs for possible similar misdeeds in her role with the National Association of Insurance Commissioners.

"Grossman approached us after the bill was put forward. We already had this on our radar and told him our approach was to do a more focused investigation on the ABAs we heard about and if we decided issues needed to be addressed by statutes we would let him know," Rivera said.

The commissioner, who recently replaced Doug Dean in the position, said the office has received complaints about specific ABAs and will look into those arrangements. Rivera said he couldn't identify the ABAs because they're under investigation.

"He (Grossman) was comforted by the fact that I said we intend to look at this and make it a priority. He was receptive to that and agreed to postpone his bill and work with us as the issue evolves," Rivera said. "He heard from a lot of different groups, ourselves included, and was reassured that we intend to do our best to determine whether there's a big problem in Colorado."

In a typical ABA arrangement, a real estate brokerage sets up a joint venture with a mortgage lender or title insurer, for example. The partnership typically provides an in-house, one-stop shopping experience for the home buyer or seller, offering brokerage, lending and even closing services under one roof.

Sen. Grossman, the now-withdrawn bill's author, has said that consumers should have more options in purchasing services when they buy and sell their homes.

ABAs are becoming more popular in the industry – the April Real Estate Services Providers Council conference focused on such agreements. Critics of ABAs feel that the arrangements discourage competition and should be more open.

Copyright 2005 Inman News

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