CFPB Cracking Down On Illegal Mortgage Referrals

This article is a repost from the NY Times

Cracking Down on Illegal Mortgage Referrals

By Lisa Prevost

A federal agency is aggressively going after mortgage, title and real estate companies that it believes are violating laws prohibiting payments or incentives for customer referrals.

The Consumer Financial Protection Bureau took over enforcement of the Real Estate Settlement Procedures Act — known as Respa — from the Department of Housing and Urban Development in July 2011. Since then, the bureau has racked up 11 Respa settlements and lawsuits, according to a spokesman.

HUD did not put much emphasis on Respa enforcement, but “the C.F.P.B. has taken it to a whole different level,” said Gary Lacefield, who worked as a Respa officer under HUD and now consults on Respa and fair housing compliance.

Last month, the bureau ordered RealtySouth, a major real estate company in Alabama, to pay a $500,000 penalty for failing to inform home buyers that they were under no obligation to use a title and closing service affiliate. RealtySouth consented to the terms of the order without admitting or denying the bureau’s findings.

Real estate companies are allowed to refer customers to affiliates like lenders and title services so long as they also provide a written disclosure that clearly explains that customers are not required to use the affiliate and have the right to shop around. In RealtySouth’s case, the firm’s printed purchase contracts explicitly directed buyers to its affiliate, TitleSouth, and buried the required disclosures in text about the benefits of its own services, according to the bureau.

“That’s Respa 101 of what not to do,” said Marx David Sterbcow, a New Orleans lawyer specializing in Respa issues. “You don’t write it into the contracts and basically steer customers to your affiliated company.”

Respa is intended to protect consumers from having to pay inflated costs for mortgage and closing services. In looking for violators, the bureau has shown that “they don’t care how big your company is,” Mr. Sterbcow said. “Nor do they care how small your company is.”

In October, the bureau filed a federal lawsuit against a family law firm in Louisville, Ky. The firm, run by J. David Borders and his two sons, provides real estate closing services. The bureau claims the firm illegally paid for referrals from real estate and mortgage broker companies through a network of shell companies. The firm denies the charges, and has argued in court documents that its affiliate arrangements met the law’s disclosure requirements. The case is still pending.

Mr. Lacefield questioned how much consumers have really benefited from the bureau’s Respa actions to date. “The focus seems to be, let’s go hammer the companies, but there is very little restitution for consumers,” he said.

All penalties collected by the bureau for violations of consumer-protection laws go into a civil penalty fund, which had a balance of $65 million as of December. While millions have been paid out from the fund as compensation to consumers, a bureau spokesman acknowledged that these payouts were not related to Respa violations.

Mr. Lacefield suggested that consumers would derive a much greater and more direct benefit if the bureau focused on the relationships between home builders and mortgage companies, especially in cases where buyers are offered upgrades or price discounts to use a preferred lender. HUD started to look at the issue in response to numerous consumer complaints, but the bureau has not made enforcement in this area a priority, according to Mr. Lacefield.

Timeshare Sales Scam

This bulletin advises you of a scam involving timeshares that may ensnare hapless timeshare owners.


In this scam, perpetrators contact timeshare owners regarding the sale of their timeshare interests.  The timeshares may be located in the United States or other countries.  The perpetrators claim to be brokers who have a buyer for the timeshare, and request a bogus “security deposit” from the seller (the current owner of the timeshare) and/or pre-payment of a fabricated “international tax” from the seller, purportedly to be refunded when the timeshare sale closes.  Sometimes the sellers are instructed to send the payments outside of the country.  There are no actual buyers and the closings do not occur.  The sellers are defrauded of these funds.


Click here for a link to the FBI’s Public Service Announcement describing Timeshare Marketing Scams.


It has come to our attention that perpetrators of this scam have misrepresented themselves as being affiliated with a title company and/or falsely advised the timeshare sellers that the escrow will be handled by a title company office. These perpetrators have used numerous title companies’ name and logo without authorization on the Internet and in various telephone and written communications relating to timeshares.  Please be advised that these perpetrators have no affiliation with Affinity Title Services, LLC or an associated title company.


If you receive an inquiry from a potential timeshare seller relating to the above, please contact Mary-Sue Solley at


If you have any questions relating to this or other bulletins, please contact us at 847-257-8000.