Affiliated Business in Title Insurance
Frequently Asked Questions
The report must contain details regarding ownership of the affiliated title entity by any person or entity in a position to refer title business (in the Utah statute, called a “producer” or an “associate” of the producer), the percentage of the title entity’s business that is affiliated business, and proof that the title entity has sufficient capital and net worth. See Utah Code § 31A-23a-1004 (required contents of the report); Utah Code § 31A-23a-1001(11) (defining “sufficient capital and net worth”).
“Affiliated business” is defined as “gross transaction revenue” of the entity’s title insurance business in Utah “that is the result of an affiliated business arrangement.” Thus, an affiliated title entity must track all orders as either “affiliated” or “non-affiliated” business so that the resulting revenues can be accurately tracked. The affiliated title entity should mark each new order as “affiliated” if it results from a referral from an affiliated person or entity – or if it otherwise results, directly or indirectly, from the affiliated business arrangement. The designation of “affiliated” or “non-affiliated” should be made in the file at origination of the new title order and should be retained in the entity’s production system so that the Division may investigate and audit affiliated vs. non-affiliated business.
After the later of two years after beginning an affiliated business arrangement or June 1, 2021, at least 30% of its annual title insurance business in Utah must be non-affiliated or the entity will be in violation of the law.
Yes. A new provision was added to the “Grounds for Disciplinary Action” section of the Real Estate Licensing and Practices Act making it unlawful if a real estate licensee fails to “timely disclose to a buyer or seller an affiliated business arrangement” in accordance with RESPA and applicable rules. See Utah Code 61-2f-401(25).
A real estate licensee (or other person referring title business) who refers a customer to an affiliated title entity generally must make a written disclosure, using the form provided in Appendix D to Part 1024 of Title 12 of the Code of Federal Regulations (see Forms on the Division’s website), disclosing the nature of the affiliated relationship (explaining ownership and financial interest) and the estimated charges of the affiliated title entity, and explaining that the consumer is free to choose a different provider and has no obligation to use the affiliated provider. Generally, the disclosures “must be provided on a separate piece of paper no later than the time of each referral” and the disclosing party should obtain a signed acknowledgment of receipt of the notice and keep it in the file.
Both sides of the transaction would constitute affiliated business of the title entity. An “affiliated business arrangement” exists if a referring person has an affiliated relationship with a title entity and “either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider.” See 12 U.S.C. § 2602(7); Utah Code § 31A-23a-1001(2).
With limited exceptions, no fee, kickback or any other “thing of value” may be given or accepted in for the referral of title insurance business. For example, a company “may not pay any other company or the employees of any other company for the referral of settlement service business” – which includes title insurance business. “Thing of value” is not limited to the transfer of money but is broadly defined to include discounts, credits, and services at special rates or free (among other examples given in the regulations). This prohibits, among other things, incentives given or offered by brokers to their agents for the referral of title business to an affiliated entity.
Yes, but the benefit generally must be limited only to “a return on an ownership interest” in the affiliated title entity. For example, a real estate entity that owns an interest in an affiliated title entity may receive dividends or distributions from the profits of the affiliated title entity, but such dividends or distributions must be based solely on ownership percentage and not on volume of referrals or some other basis. Ownership interests in an affiliated title business cannot be offered or based on a minimum number of referrals.
No. The federal RESPA law and regulations are still binding in Utah and still enforceable by the Consumer Financial Protection Bureau (“CFPB”). However, the new Utah law references RESPA section 8 and related provisions and regulations – with a few modifications – as part of Utah law enforceable by the Division. Therefore, in Utah, RESPA section 8 is now regulated by both the CFPB and by the Division.
Although RESPA applies only when federally related mortgage loans are involved, the Utah law applies to all affiliated business in title insurance. Also, in a few instances, the Utah law is more explicit than RESPA because it incorporates the RESPA statute and regulations along with guidance from other federal sources. For example, the Utah law imposes minimum capital requirements on affiliated title entities and a minimum percentage of non-affiliated business, as discussed in other FAQs above. Further, the Utah law lists several specific factors that Division may evaluate and weigh in determining whether an affiliated business arrangement violates RESPA section 8, including such things as whether the affiliated title entity has its own employees, has a separate office and pays market rent, performs the essential functions of the title business itself, and whether the person referring business to the affiliated title entity also refers business to other title entities. See Utah Code § 31A-23a-1003.