Affiliated Business Arrangements
Sometimes, several businesses that offer settlement services are owned or controlled by a common corporate parent. These businesses are known as "affiliates," while the relationship is called an "Affiliated Business Arrangement" or "ABA" for short.
When a lender, real estate broker, or other participant refers his homebuyer to an affiliate for a settlement service (such as when a real estate broker refers his homebuyer to a mortgage broker affiliate), the law requires the referring party to provide an Affiliated Business Arrangement Disclosure. This disclosure informs homebuyers they are not required to use the affiliate and are free to shop for other providers.
Despite advances in technology that allow homebuyers to shop for title services, many homebuyers remain unaware that they may select their own title insurance or settlement company.
A recent survey from the Ohio Association of Independent Title Agents (OAITA), conducted from 2009 through 2010, showed when homebuyers are made fully aware of ABAs, they become uncomfortable and prefer a title company or title agent to be a third party (i.e., independent) to the transaction.
While 77% of respondents did not independently select their settlement company, when made fully aware of the ABA relationships 50% of respondents said they prefer a title company that does not share profits with a referral source compared to 6% of respondents saying they prefer a title agent that shares profits with a referral source. Further, 58% of respondents said they believe that ABAs are a conflict of interest.
The OAITA stands in stark contrast to two Harris Interactive surveys used by the Real Estate Services Providers Council in a January 2011 meeting with Federal Reserve staff to claim that homebuyers were more satisfied with the ABA settlement service providers.
- A 2002 study used by the proponents revealed that 64% of homebuyers who used “one-stop shopping” programs had a better overall experience with their home purchase transaction.
- A 2008 study revealed that homebuyers who used “one-stop shopping” in their latest real estate transaction were more satisfied with their home buying experience compared to those who used services of multiple providers.
Organizations such as the National Association of Independent Land Title Agents seek to restore transparency and credibility to the land title process and to preserve an objective and impartial role at the closing table to improve the consumer experience, by addressing the proliferation of controlled business arrangements and eliminating conflicts of interest between title agents and their referral sources, as well as between all real estate settlement service providers and their sources of business.
Read more about this topic: Title Insurance
Famous quotes containing the words business and/or arrangements:
“The art which we may call generally art of the wayside, as opposed to that which is the business of men’s lives, is, in the best sense of the word, Grotesque.”
—John Ruskin (1819–1900)
“Autonomy means women defining themselves and the values by which they will live, and beginning to think of institutional arrangements which will order their environment in line with their needs.... Autonomy means moving out from a world in which one is born to marginality, to a past without meaning, and a future determined by others—into a world in which one acts and chooses, aware of a meaningful past and free to shape one’s future.”
—Gerda Lerner (b. 1920)