AFFILIATED BUSINESS AGREEMENTS IN THE REAL ESTATE INDUSTRY

ABA's in the title industry
by CHARLENE PERRY | 2010/04/02 |

Today I took a call from a local auctioneer and investor

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He called to see if we were interested in acquiring new business.  Well what small independant title agent is not interested in acquiring new business? 

His first question to me was "do you have the forms necessary to form an ABA?" I responded that we did not and that I was not interested in forming an ABA. He then took on quite an attitude with me! He stated that he has been averaging 900 deals a year and that he was looking for a new title agent and queried why I was not willing to pay him for referrals. RESPA clearly states that it is not legal for a title agent to provide anything of value in exchange for a referral. I can only hope that his current title agent is not "paying him" for his referrals.

I investigated forming an ABA with a realtor about 2 years ago.  I sat down with underwriting counsel, forms in hand, and went over each and every of the underwriter's requirements for forming a "legitimate" ABA using their guidelines. 

The requirements were so stifling it became evident to me that although the underwriter would not state that we could not form an ABA it was clear that they were not particularly happy about ABA's in general. At the end of our meeting I decided that an ABA just was not going to work for me. 

I know that times have changed and that ABA's are being used more and more in the real estate industry, and I understand that we must all work hard to acquire referrals and then to keep those referrals as clients.  Why though is it not possible for someone just to make a referral to a firm because they are happy with the level of service and expertise being offered to the consumer? At what point did everyone become so mercenary? 

I make referrals every day to realtors, lenders and other service providers relative to real estate transactions. Why do I refer them?  Because they do an excellent job for the consumer.  What do I ask in return? I do not ask for a "piece of thier pie" I simply ask that if they have found our services to be excellent that they do the same for me and make a referral. 

I personally have problems with realtor, lender and title company ABA's in general. Ultimately it is the consumer who loses out in these type agreements.  As a consumer I don't want my title agent tied in with my realtor and lender.  Who is going to offer checks and balances? We all know that in an ABA situation the realtor will refer the deal to the lender who in turn refers the deal to the title agent. So now you have 3 entities who are "affiliated" involved in the deal. Let us suppose now that the title is somehow defective, and seriously, have you seen any titles of late that don't have ANY issues? So the title agent calls the realtor to advise that there is a title issue; let's assume it's correctable but it will take time. The realtor then calls the lender who states "OH NO the lock is going to expire.  This deal has to close on time." Now the lender calls the title agent and "gently" urges the title agent to write over whatever defect that have discovered, otherwise, neither the realtor the lender nor the title agent will get any of the pie. Now in and of itself that is not unusual, but, we must also remember that the fees to the consumer in these "affiliate" deals are usually higher than they would be had the buyer not agreed to use "affiliate" entities because each of these entities is getting their fee as well as a portion of the "bump" added on for the ABA partners to split.

I am not in a position to turn down legitimate business, but neither am I in a position to lose my license in an effort to make an extra $50.00 per deal or to pay for referrals. And, as I have stated, I just don't think ABA's are good for consumers. 

So today, I may have lost some business, but, tonight I will sleep well knowing that I did not violate my own code of ethics and I did what small bit I could to protect the consumer.