As you know, I'm a firm believer that the economic mortgage crisis was caused from the removal of the "checks and balances" and from the increase of affiliated business arrangements so strongly now supported by ALTA. The American Land Title Association (ALTA) has apparently given up listening, supporting or otherwise giving a rats patootee about the independent title agent and the real estate consumer in America. They might as well take the word American out of their name since they no longer advocate for any of the real values and ethics that this industry was originally built on. This lack of stewardship has sunk the boat and their board of directors are a huge disappointment.
As highlighted in a recent blog post by Slade Smith at the Source of Title. (see below the entire Blog post with permission to reprint below)
As highlighted in a recent blog post by Slade Smith at the Source of Title. (see below the entire Blog post with permission to reprint below)
Controlled Business Arrangements: From the Outhouse to the Penthouse at ALTA (subscription required)
Once upon a time, The American Land Title Association, otherwise known as ALTA, the primary national advocate for the title insurance business, actually actively and vociferously fought controlled business arrangements.
Back in these times long ago, title insurance business were often pressured to pay kickbacks to other real estate related business that referred them title work. Owners of title businesses generally did not like these kickback arrangements-- they were the ones who were pressured to pay them to just to get business, and they were the ones that lost out when they did not play ball. Plus, these payments were giving the title industry a black eye-- for instance, in the early 1970s, the title industry was the subject of some not so friendly scrutiny by Congress that cast the title business in an unfavorable light. It was probably not much fun to be pressured to unethically pay out part of your profits to compete for business and be considered sleazy by association even if you held the line.
ALTA, as the professional association speaking for these businesses, therefore had advocated for provisions in The Real Estate Settlement Procedures Act (RESPA), passed in 1974, which outlawed kickbacks from title companies to the businesses that referred business to them.
A controlled business-- a business engaged in a line of work where the work flow came from other businesses, not consumers, and which got some or all of its business from referrals from its own owner-- was seen as a highly suspect arrangement by most in the title insurance industry back in those times. The thought was that if realtors, lenders, and builders were allowed to own their own title companies, they could lock up most of the business, since they, not consumers, typically decided where title business went. Independent title agencies without a ownership tie-in with a source of business would be shut out of the market, the thought went.
Moreover, it was easy to see how a controlled business arrangement could be set up to deliver a payment to a referrer of title business that looked an awful lot like a kickback. For instance, a realtor or a lender would take a partial ownership interest in a title agency, basically do nothing for that agency except refer it business, yet just take what amounted to a kickback from the agency's coffers.
With kickbacks now explicitly illegal, the issue of controlled businesses became much more important in the title industry. The players in the real estate business who had been used to receiving the money were now facing stiff new penalties under RESPA if they accepted kickbacks the old fashioned way. They'd be looking for a way to get around that.
in 1976, Coldwell Banker, a real estate brokerage, attempted to license a wholly owned title insurance business in California. The insurance commissioner nixed the idea, saying that the arrangement was anticompetitive. Coldwell Banker appealed, but the commissioner's ruling was upheld. A controlled business had been put out of business on competitive grounds. Did this mean that controlled business arrangements were illegal under RESPA? It was enough of a threat to controlled business arrangements that efforts arose to amend RESPA to explicitly legalize them.
Not surprisingly then, in the late 1970s and early 1980s, the fight over against legalizing controlled business in the title insurance industry was a primary and sustained focus of ALTA's lobbying efforts. They were, after all, fighting for the interests of their members.
ALTA pounded the table on controlled business arrangements year after year. ALTA's President in 1979, Robert C. Bates, said that the financial inducements inherent in controlled business arrangements were "as harmful as the payment of outright kickbacks." In 1981, another ALTA President, James L. Boren, Jr., testified before a Congressional committee and described the evils of controlled business arrangements. In 1982, when President Reagan himself proposed that rules prohibiting realtors from selling title insurance should be lifted, Boren's successor as ALTA President, Fred B. Fromhold, wrote a letter to the President on behalf of ALTA's membership, expressing "shock and dismay." If such restrictions were lifted, title business would have to be bought rather than earned, Fromhold said.
But President Reagan had run on a platform of deregulation, and so despite this advocacy, RESPA was amended in 1983, with explicit language that legalized "affiliated" businesses arrangements in the title insurance industry if certain conditions were met.
Still, there was considerable uncertainty over what separated a legal controlled business arrangement from an illegal one. So HUD issued a series of opinions, outlining what kind of ownership arrangements would be considered tantamount to an illegal kickback arrangement. But these opinions really did not resolve the issue definitively, and the issue remained confused and contentious, and there were various ongoing efforts to change or clarify the rules.
ALTA remained involved. When legislative attempts were made to further weaken regulations regarding controlled business arrangements, ALTA continued to advocate against these attempts. For example, in a 1993 Congressional hearing on RESPA reform which concentrated on the controlled business issue, another past ALTA president, Roger N. Bell, appearing on behalf of ALTA, argued strongly against new HUD rules which allowed a business to pay bonuses to its employees for referrals to controlled businesses. "it is already difficult to compete with the controlled business company," Bell told the committee. "Now, the regulations could be the last nail in the coffin for many independent small businesses such as mine."
It's hard to avoid the implication of Bell's statement-- that several nails had already been driven into the coffin of the independent small businesses by the emergence of controlled businesses in the title industry.
Who had been hammering in those nails?
Ironically, as it turns out, more than a few metaphorical nails had been driven in by none other than current ALTA President, Anne Anastasi, according to some independent title agents.
Anastasi is president of Troon Management Corp., "the only independent management team in the country, dedicated to the creation and facilitation of title Affiliated Business Arrangements," according to its website. Catering to builders, realtors, banks, and attorneys, Troon has helped set up controlled title business arrangements in thirty major cities in sixteen states, it says.
Anastasi personally established her first title industry controlled business arrangement in 1984, before the ink was dry on the legislation legalizing them-- one of the first controlled business arrangements in the country, according to the Troon website.
Troon's consulting service promises a "plan of action" to set up an controlled business from a two day consulting session. During this session, the correct, compliant answers will be provided for the questions your would-be business partners are likely to have, Troon says. From only two unspecified numbers provided by your potential partners in the arrangement, Troon promises to calculate financial projections and scenarios for the venture.
Troon's mottoes imply the urgency of setting up controlled business arrangements for title businesses. "If you wait you may not have enough partners or the right partners left," the site says. Another motto stresses that those setting up a controlled business arrangement should not be too "piggish," or "your competition will easily steal your clients."
Anastiasi's role in promoting controlled business arrangements has not escaped the wrath of certain independent title agents. "[T]he title insurance industry is now led by someone who makes a living destroying competition in the title insurance industry," according to a November post on the Ohio Association of Independent Title Agent's blog.
