Federal consumer agency takes action against real estate settlement servicer for steering clients to affiliated business
September 27, 2017
The Consumer Financial Protection Bureau took action Wednesday against real estate settlement services provider Meridian Title Corp. for steering consumers to a title insurer owned in part by several of its executives without making disclosures about the businesses’ affiliation.
The bureau found that Meridian failed to disclose its relationship with the title insurer and illegally benefited from the referrals for title insurance – which is usually required in real estate purchases involving a mortgage loan. Under Wednesday’s consent order, the bureau is ordering Meridian to ceases the illegal practice, provide disclosures when it makes a covered referral, and pay up to $1.25 million to pay back consumers.
“Meridian Title illegally steered consumers into purchasing a product from an affiliated company to add to its bottom line,” said Richard Cordray, director of the bureau. “We’re ordering it to halt this practice and pay up to $1.25 million to consumers who were harmed.”
Meridian Title Corporation is a real estate settlement agent and title insurance agency. As a settlement agent, Meridian provides real estate settlement services and conducts loan closings in connection with residential real estate transactions.
Lenders usually require title insurance to protect their interests when providing a mortgage loan if someone else can collect on a lien or there are back taxes owed on the property. Consumers are generally able to select the title insurance provider during the home-buying process, as long as the title insurance policy complies with lender requirements. As a title insurance agent, Meridian receives orders for title insurance policies from lenders and real estate agents, and in some cases from consumers, and assigns those orders to title insurance underwriters.
The bureau found that Meridian routinely selected Arsenal Insurance Corp., a company owned in part by three of Meridian’s executives, as the title insurance underwriter for its customers. When it selected Arsenal, the bureau found that Meridian was able to keep extra money beyond the commission it would normally have been entitled to collect, based on an understanding that Meridian would select Arsenal as underwriter.
A company like Meridian that receives anything of value due to an agreement or understanding that business will be referred to an affiliated business such as Arsenal is required to disclose its relationship to the consumers in order to avoid a violation of the Real Estate Settlement Procedures Act. In its investigation, the bureau found that Meridian failed to make disclosures to more than 7,000 consumers when it selected Arsenal to provide title insurance and also didn't satisfy other conditions for avoiding a violation of the law.
Enforcement action
The bureau’s order requires Meridian to:
- Pay up to $1.25 million to harmed consumers: Under the order, Meridian is required to pay up to $1.25 million to pay back consumers who were referred to and purchased title insurance from Arsenal but didn't receive disclosures.
- Stop violating the law and start providing disclosures: Meridian is directed to not violate the Real Estate Settlement Procedures Act and is required to carry out policies and procedures to ensure it discloses to consumers when it makes a referral.
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