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U.S. Intervenes in Alleged Kickback Lawsuit December 30, 2010

Inside ALTA
A motion to intervene by the United States was granted Dec. 22 by the U.S. Sixth Circuit Court of Appeals in a
Headlines
lawsuit accusing two real estate companies of setting up sham title companies in order to receive kickbacks.
Member-Access News
Free Industry News The court approved federal intervention in Carter v. Welles-Bowen Realty, Inc. after the plaintiffs appealed a
ruling in favor of the defendants. The Ohio plaintiffs allege Chicago Title Insurance Co. collaborated with Welles
ALTAcest Audio
Bowen Realty and Danberry Co. to create two sham title companies. According to the lawsuit, Chicago Title
Search and browse performed the title searches. WB Title and Integrity Title then evaluated the title evidence to determine
archived stories prior to
February 2009 by these insurability, issued title commitments, and issued final title insurance policies.
categories:
The plaintiffs were provided with disclosures of defendants' ownership arrangement when the plaintiffs
Government News
purchased title insurance. Plaintiffs were not required to use any particular title insurance agency. The only thing
Market News of value that the owners of WEI Title and Integrity Title received was a return on their ownership interest. The
Press Releases plaintiffs do not allege they received subpar title insurance services or were overcharged for those services.
Technology News However, RESPA allows recovery of treble damages by consumers who are charged for any settlement service
rendered in violation of the anti-kickback provision.
Other Headlines
Industry News The United States moved to intervene in the appeal to address two Issues:

• whether a policy statement issued by the United States Department of Housing and Urban Development
is unconstitutionally vague; and
• whether that policy statement is entitled to deference. The plaintiffs support the intervention of the
government, and the defendants oppose the motion to Intervene.

In addition, the court granted the plaintiffs motion to seal their brief, stating that it will disclose confidential
financial material that is protected by two confidentiality agreements entered into in the district court. The
defendants support the motion to file under seal.

In June 2010, a judge for the U.S. District Court for the Northern District of Ohio ruled in favor of the defendants
saying WB Title and Integrity Title are providers of settlement services.
TIPAC
"There is no dispute they meet the three requirements of the Section 2807(c)(4) exception for ABAs. Therefore,
Defendants have not violated the anti-kickback or unearned fee provisions of RESPA," Judge Jack Zouhary
ruled. Zouhary went on to say that HUD's Ten-part test used to determine whether an A1BA is a sham under
RESPA or whether it constitutes a bona fide provider of settlement services is unconstitutional vague and
provides insufficient guidance.

Click here to read the memorandum and opinion Issued by Judge Jack Zouhary.
T1AC
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According to Zouhary: "HUD's interpretation of 12 U.S.C. § 2807 in Policy Statement 1996-2 is unconstitutionally
vague. It provides insufficient guidance to the regulated public, and It lacks identifiable standards under which
authorities (or private parties) can enforce its provisions in a criminal or civil context."

The judge goes on to say RESPA's general prohibition on kickbacks remains in full force.
WAS
Prior to this opinion, HUD published an Advanced Notice of Proposed Rulemakinq (ANPR) seeking input by
Sept. 1 to strengthen and clarify RESPA's "required use° prohibition.

ALTA provided comments to the APNR supporting HUD's efforts to strengthen and clarity the prohibition
because questions and legal challenges have resulted from unclear definitions and enforcement. "Consumers
and industry stakeholders benefit from a level playing field and ALTA supports HUD's efforts to create clearer
guidance and enforcement on this subject,' Kurt Pfotenhauer, ALTA's chief executive officer, wrote in the
comment to HUD.

Our experience in implementing the new RESPA rule shows the value of clear guidance and strong
enforcement," Pfotenhauer said. "Implementation of the new RESPA rule has revealed a number of gaps In
guidance resulting in conflicting interpretations of 'acceptable' practices. Conflicting Interpretations have made It
difficult for market participants to determine if they were in compliance or to achieve an accepted uniformity of
process. If conflicting interpretations of the 'required use' prohibition are not prevented, market variations will
erode the efficacy and intent of improvements to the rule."

hap://www.alta.org/news/news.cfm?newsID=12984 12/30/2010
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Any rulemaking HUD conducts should offer clear guidance to market participants so that the intent of
rulemakings is fully understood and not misinterpreted. ALTA encouraged HUD to draft "required use" guidance
that ensures four main points:

• consumers benefit;
• industry participants receive clear guidance on prohibited practices;
• timely enforcement Is in place to protect consumers and provide the market certainty that practices are
acceptable; and
• regulation provides a level, competitive playing field for all settlement service providers.

Click here to read the entire letter submitted to HUD.

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http://www.alta.org/news/news.cfm?newsID=12984 12/30/2010