August 26, 2002
Mortgage Lender Licensees - Affiliated Business Arrangements
Joint Ventures between Maryland licensed mortgage lenders and Maryland licensed title companies
The Commissioner has become aware of increased activity in the formation of joint venture
companies between Maryland licensed mortgage lenders and title
companies. Licensees are strongly advised to review with their legal
counsel RESPA, 1 HUD Regulation X
and Maryland laws governing affiliated business, if they are currently
involved in or intend to create a joint venture.
No Maryland law specifically prohibits affiliated business arrangements. However, creation of
"sham entities" to create and funnel additional unearned fees
to the lender or broker are prohibited under RESPA (12 U.S.C. Sections 2601,
et seq.). As a general matter joint ventures are permitted if:
- all RESPA requirements on affiliated business arrangements are met;
- the joint venture title entity is properly licensed by the Maryland Insurance Administration;
- the joint venturers receive no payments other than a return on their ownership interest, and the
liability of each is based on its ownership interest;
- no rebate is paid on the transaction; and
- customers of the mortgage lender are not required to use the joint venture title agency. The
mortgage lender must avoid any communication that limits or
influences the borrower’s free choice of title services.
Article 27, Section 465A of the Maryland Code, the Maryland Real Estate Settlements Act (the
"Act") provides that:
"no person, firm or corporation having any connection whatsoever with the settlement of
real estate transactions involving land situated and lying in this
State shall , for the purpose of soliciting, obtaining, retaining,
or arranging any real estate settlement or real estate settlement
business, pay to or receive…any fee, compensation, gift…,thing
of value, rebate, or other consideration…."
Although the Act permits payment of fees or commissions to agents who have been licensed by the Maryland
Insurance Administration, it prohibits the payment of fees in most
instances. Compliance examinations will include review of all
settlements to determine whether third party joint ventures are paid
fees that may not be supported by reasonable services provided. Further,
disclosure of the joint venture relationship will be examined for compliance with applicable laws.
1
Also refer to HUD Statement of Policy on Sham Controlled Business Arrangements
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