Colorado Targets 180 “Sham” Affiliated Businesses

April 6, 2006

Erin Toll, deputy commissioner of the Colorado Insurance Department, has pledged to close 180 affiliated businesses operating illegally in her state this year.

Toll said there is nothing wrong with affiliated businesses that operate properly. However, she is seeking legislation in Colorado to increase licensing requirements and to stop “sham” affiliated businesses that she hopes will be a model for other states.

“We need to do the right thing,” Toll said. “[The days when no one is enforcing rules] are gone. We need greater teeth. Regulators have to step up.”

Toll addressed her remarks to more than 300 members of the Real Estate Services Providers Council (RESPRO) on Wednesday at the Mandarin Oriental Hotel. RESPRO is a national organization of state regulation over affiliated businesses, many of which are also frustrated about “shams” in their marketplace.

The three-day industry seminar ended after heavy concentration by the trade group on compliance issues concerning federal government regulation. However, the growing trend of affiliated businesses dominated the session.

Illegal kickbacks between companies for referrals were largely behind 14 settlements last year between the Dept. of Housing and Urban Development (HUD) and businesses nationwide. Saying improper referral fees largely trigger review, HUD’s RESPA Enforcement Director Ivy Jackson said her agency trained 125 agents last year with more to come this year along with increased coordinations within federal agencies. Rogue companies, Jackson said, are on “HUD’s radar.”

“We look beyond first blush to see how kickbacks are being made,” Jackson said. “We’re going to be looking at builders and real estate agents who have their hands out.”

Indeed, Toll said kickbacks were also the trigger for many investigations in Colorado.

“Start messing around with kickbacks,” she said, “and whether it’s conscious or not, that realtor will steer business to that place.”

Keynote speaker House Financial Services Committee chairman Michael Oxley, R-OH, said he expects a preliminary report from the General Accounting Office in late April in regards to the possible “anti-competitive advantages” employed by some title companies. However, Oxley was uncertain whether the report would prompt legislation.

Oxley also said the Real Estate Settlement Procedures Act (RESPA) needs updating from its 1974 creation. HUD is expected to release a proposed RESPA regulation within the next three months.

“There’s got to be a better way for RESPA to work,” Oxley said, “than reams of paper. Lots of forests have died putting together paper for closings.”

A 12-term Congressman who will retire later this year, Oxley said the housing industry remains vital to the nation’s economy.

“The only thing that kept the recession from going deeper and longer was the housing market,” he said. “We can’t keep that hot pace going forever, but it’s still pretty viable for our economy.”

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