I just starteds working with a builder and he would like all buyers to use the title comoany he is part owner in for cost and the fact they have all the master abstracts there.

How can we direct buyers there without steering or offering them discounts which I think violate the rules.

We have an addendum which states our relationship wuth the title company.

Thanks

You need to read up on Section 2608 of the RESPA Act

"Sec. 2608. Title companies; liability of seller

(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.

(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance."

Since almost all loans are "federally related", this covers pretty close to every loan.

This however is pretty little known section, most buyers don't care anyway.

I don't believe it's a RESPA violation for consumers to get any sort of benefits from a title company like it is for real estate licensees.

Probably 999 buyers out of a thousand would just say "Sure" if you asked them to close at a particular title company.

If your client (the buyer) is relying upon you for your advice in this regard, then first, your advice must be unbiased and unfettered from any conflicts. Second, you must always put your client's interest first, above all others, especially your own (self dealing).

Obviously you have a conflict in that you represent the builder. I think you must refrain from giving any advice whatsoever to those buyers. "Steering" sure sounds like a word that could be construed in court to mean an abusive use of a fiduciary relationship.

The builder probably has a customer relationship with those buyers. Your duties and liability far exceed the builder's. Most of the incentives I've seen builders offer to use their title companies exceed the value of the services being offered. In other words, they aren't discounts at all (topic for another day), they are going to charge the buyer more as a penalty if they don't use their title company. Most of the "discounts" are misleading at best. They certainly are not at their cost.

And although the builder might be able to get away with some "puffing" you certainly can't. Do you want to be the "fall guy" for the builder? You are a fiduciary and will be held to much a higher standard.

Standard practice for a fiduciary, if you have a relationship with a title company as described, is to disclose the conflict and completely remove yourself. Remember, RESPA is a minimum standard. Your licensing laws, commercial bribery laws (as applied to fiduciaries) and common law of agency far exceed the requirements of RESPA.

You can't legally help a client choose a title company if you have an interest in one. I'm defining an "interest" as a relationship from which you or your broker get "any thing of value" as described in RESPA. If you benefit because the builder will give you his listings if you refer his title company, that is "a thing of value."

A fiduciary's first order of business is to avoid conflicts of interest. They certainly shouldn't be entering into relationships that they know will create a conflict. If one comes up, you MUST refrain from advising your client. That means no communication whatsoever on the topic. No winks, no "this is what I would do's" nothing.

One other thing. What if the builder is using this title company to cover up a title defect? Most of the mortgage fraud cases involve controlled business relationships. By using an in-house title company you do away with an important check and balance.

I am an attorney.

Here is one legal opinion about that.

How RESPA and the CBR Purchase Contract address selecting a Title Agency
by James Zitesman
Attorney at Law
One of today’s hot topics is the selection of the title insurance agency. RESPA, the Real Estate Settlement Procedures Act, addresses title agencies, settlement services, and real estate professionals. The full text of RESPA can be found at 12 USC 2601-2617.
12 USC 2607 deals with the prohibition against kickbacks and unearned fees. To summarize, a real estate professional is prohibited from receiving anything of value for the referral of settlement services. However, a real estate professional is permitted to receive a return on the ownership interest in a settlement services provider so long as the relationship is disclosed and the parties are not required to use said provider.
It is permissible under Ohio Licensing law for a real estate professional to have an ownership interest in a title agency or settlement services provider, “affiliated business.” The licensee should only suggest the services of the affiliated business when it is in the client’s best interest. The suggestion of the use of an affiliated business when it is clear that the client’s best interest would be better served by utilizing another title agency or settlement services provider may result in a breach of fiduciary duty.
Paragraph 7 of the Real Estate Purchase Contract created by the Columbus Board of REALTORS® and the Columbus Bar Association states, “The Seller shall furnish and pay for an owner’s title insurance commitment and policy in the amount of the purchase price…” As long as this provision is utilized, the seller has the right to select where the title insurance will be purchased.
Unfortunately, the HUD website, in an effort to paraphrase 12 USC 2608, commonly referred to as RESPA Section 9, has caused some confusion. It states “Section 9 of RESPA prohibits a seller from requiring the home buyer to use a particular title insurance company, either directly or indirectly, as a condition of sale. Buyers may sue a seller who violates this provision for an amount equal to three times all charges made for the title insurance.”
The actual text of 12 USC 2608 is, “(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
(b) Any seller who violates the provisions of subsection (a) of this section shall be liable to the buyer in an amount equal to three times all charges made for such title insurance.”
Those using the CBR/CBA Real Estate Purchase Contract Paragraph 7 as written will not be in violation of RESPA Section 9 when the seller selects a title agency to handle the closing. As long as the buyer is not required to purchase title insurance from a particular company as a condition of the sale, the seller can select the title agency.
Some argue that since the buyer’s lender requires a lender’s title insurance policy, the buyer is being required to purchase that title insurance policy from the company of the seller’s choosing. In fact, the buyer may purchase the lender’s policy from any title insurance agency, however, the simultaneous issuance of the owner’s policy and the lender’s policy usually results in a nominal charge of $100 to the buyer compared with the full issuance rate.
An article in the Summer 2004 Newsletter from the Division of Real Estate and Professional Licensing discussing RESPA also reviewed the law governing commissions. The law is very clear: salespeople may only receive commissions, fee, or other compensation through their affiliated broker. Checks may only be made payable to the broker and cannot be made payable jointly to the broker and the salesperson. Salespeople are not permitted to receive any commissions, fees, or anything of value directly from the title agency. There is no permissible way around the law.
The Division of Real Estate encourages real estate professionals to report any suspected violations, as it is the real estate professionals who are the best enforcement against illegal activity.

Here is some additional info, you might want to have a local attorney review how you will handle this:

3500.16 Title companies.
No seller of property that will be purchased with the assistance of a federally related mortgage loan shall violate section 9 of RESPA (12 U.S.C. 2608). Section 3500.2 defines ``required use'' of a provider of a settlement service. Section 3500.19(c) explains the liability of a seller for a violation of this section.

3500.2 Definitions.
Required use means a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service. However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process.

3500.19 Enforcement.
(c) Violations of section 9 of RESPA (12 U.S.C. 2608) or 3500.16. Any person who violates Section 3500.16 of this part shall be deemed to violate Section 9 of RESPA and shall be sanctioned accordingly.

Yes bascially in a nutshell your builder has to disclose not only that they have a realtionship with the title company but they have to disclose that they will benefit from that relationship monetarily or otherwise.As long as they do that they are fine and have the buyer sign that they accept that or they check the paragraph that states they have chosen to select there own title company sign and date it.

no legal advice

Most of the attorneys who advise the real estate profession are self proclaimed "RESPA attorneys" and they make a living advising and defending brokers. I find it amazing that most of these attorneys seem to "forget" other areas of the law, especially fiduciary law. Especially when they are trained in fiduciary law. Especially when their clients are fiduciaries.

If you are a fiduciary, and I assume most of you are, then RESPA is the least of your concerns. RESPA is a MINIMUM standard (see below). And because you are fiduciaries, the state common law of agency applies and so do some unexpected criminal laws. For example, in most states if a fiduciary accepts something of value that was intended to influence the advice they give their clients, it is considered "Commercial Bribery." Do you really want to guess how a judge is going to construe your actions and whether or not they fit within a criminal statute? There is a strong argument that much of the referrals that go on fit within this statute. For example, buyer broker bonuses offered through the MLS could arguably fit within this one. If you get convicted of commercial bribery, you will automatically lose your license.

Disclosure of the conflict may satisfy RESPA, however, it does not satisfy the areas of law that are most important - those that apply to real estate licensees acting as fiduciaries. Think about it, RESPA applies to everyone, fiduciaries and non-fiduciaries. It is a general law and only a starting point.

The Burnet vs. Grady case in Minnesota which just lost class certification (an administrative decision, not a decision on the merits) and is still going strong, alleges that it is a breach of the broker's duty of loyalty to steer a client into one of the most expensive title companies in town.

There are many other shapes and sizes that this type of case could take. For example, it is a breach of duty not to engage in due diligence when recommending a title company, it is self-dealing, duty of accounting, etc... Bottom line, the Grady case is very scary. It is not seeking damages as far as the difference in fees, rather, they are following the common law of agency which states that if a fiduciary breaches their duty of loyalty they must forfeit all fees earned. We're talking about every real estate commission earned!

You are receiving very bad advice from these RESPA lawyers. Below is the RESPA provision that applies as well as a typical commercial bribery statute.

RESPA Sec. 2616. State laws unaffected; inconsistent Federal and State
provisions
This chapter does not annul, alter, or affect, or exempt any person subject to the provisions of this chapter from complying with, the laws of any State with respect to settlement practices, except to the extent that those laws are inconsistent with any provision of this chapter, and then only to the extent of the inconsistency. The Secretary is authorized to determine whether such inconsistencies exist. The Secretary may not determine that any State law is inconsistent with any provision of this chapter if the Secretary determines that such law
gives greater protection to the consumer. In making these determinations the Secretary shall consult with the appropriate Federal agencies.

609.86 COMMERCIAL BRIBERY.
Subdivision 1. Definition. "Corruptly" means that the actor intends the action to injure or defraud:
(1) the actor's employer or principal; or
(2) the employer or principal of the person to whom the actor offers, gives or agrees to give the bribe or from whom the actor requests, receives or agrees to receive the bribe.
Subd. 2. Acts constituting. Whoever does any of the following, when not consistent with usually accepted business practices, is guilty of commercial bribery and may be sentenced as provided in subdivision 3:
(1) corruptly offers, gives, or agrees to give, directly or indirectly, any benefit, consideration, compensation, or reward to any employee, agent or fiduciary of a person with the intent to influence the person's performance of duties as an employee, agent, or fiduciary in relation to the person's employer's or principal's business; or
(2) being an employee, agent or fiduciary of a person, corruptly requests, receives or agrees to receive, directly or indirectly, from another person any benefit, consideration, compensation, or
reward with the understanding or agreement to be influenced in the performance of duties as an employee, agent, or fiduciary in relation to the employer's or principal's business.
Subd. 3. Sentence. Whoever commits commercial bribery may be sentenced as follows:
(1) to imprisonment for not more than five years or to payment of a fine of not more than $10,000, or both, if the value of the benefit, consideration, compensation or reward is greater
than $500;
(2) in all other cases where the value of the benefit, consideration, compensation or reward is $500 or less, to imprisonment for not more than 90 days or to payment of a fine
of not more than $1,000; provided, however, in any prosecution of the value of the benefit, consideration, compensation or reward received by the defendant within any six-month period
may be aggregated and the defendant charged accordingly in applying the provisions of this subdivision; provided that when two or more offenses are committed by the same person in two or
more counties, the accused may be prosecuted in any county in which one of the offenses was committed, or all of the offenses aggregated under this clause.

Here is another Texas State specific look at RESPA Sec. 9.

Determining who has the right to select the title company to close and insure a residential transaction can sometimes be an emotional and controversial issue. Although most residential buyers and sellers could care less who closes the transaction, most real estate agents have a favorite title company or closer with whom they prefer to do business.
Accepted Practice
The accepted business practice in central Texas is for the agent working with the buyer to select a title company and include the selection in the offer made to the seller. The listing agent may then counsel the seller to change the proposed title company, especially if the seller is going to counter the offer for other reasons. The conventional wisdom is that because the seller is paying for the policy (usually), the seller should have the right to select which title company to use. However, there may be a problem.
Section 9 of RESPA
The Real Estate Settlement Procedures Act (RESPA), enacted by Congress, applies to most residential transactions. The potential problems rises out of Section 9(a) of RESPA which states, “No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.” The penalty for violating this provision is an amount equal to three times the cost of the title insurance provided.

Texas Rates Set by Insurance Board
In Texas, title insurance rates are set by the State Board of Insurance; however, in many states the cost of title insurance can be negotiated. Section 5 was intended primarily to prevent volume home builders, in those states which allow negotiated rates, from negotiating a reduced title premium for interim construction or development loans in return for direction all closings to a title company when a home was sold. Unfortunately, the language of Section 9 is broad enough to present problems for all sellers and their brokers.
Because Texas regulates title premiums (btw as does Colorado), there is little reason to apply Section 9; referring volume business to a title company will not entitle the title company to offer a better rate. However, HUD has been willing to unequivocally state that Section 9 does not apply to regulated premium states such as Texas. Because the seller usually pays for the owner’s title policy, at first consideration you might conclude that there is no problem. Section 9 only prohibits the requirement that a buyer purchase their insurance from a particular company. With the seller purchasing the insurance, arguably, there is no violation.
Unfortunately, having the seller pay for the policy does not completely dispose of the issue. The buyer is normally required to pay for a mortgagee’s policy. If the mortgagee’s coverage is purchased from the title company providing the owner’s policy, the cost is $100 endorsements. If the buyer chooses to purchase mortgagee’s coverage from a title company other than the company providing the owner’s policy, the buyer will be required to pay full premium for a mortgagee’s policy. The difference is cost is substantial: $100 versus $871 for a $100,000 loan. Is the buyer effectively “required” by economic necessity to use the company selected by the seller?
What about the argument that in most closings, the only party writing a check at closing is the buyer? Can a buyer not effectively argue that the buyer is paying all costs of closing, whether they are listed on the seller’s statement or the buyer’s statement? If a seller were not paying $1000 for title insurance, would the sales price be reduced by $1000?
Lenders Can Specify the Title Company
Lenders are permitted to specify particular title companies. The Reason for this interpretation is that lenders have a vested interest in insuring that their loan is closed the way they want it closed. Because lenders can select a title company, it would appear that a seller who finances part of the purchase price would have the right to select the title company.
The Safe Approach
Unfortunately, we do not have definite answers to many of the questions raised by Section 9 of RESPA. The safe approach, until we have a definite answer from HUD or the courts, is to allow the buyer to select the title company, particularly when you have a buyer who is insistent upon using a particular title company. If selection of a particular title company is important to a seller, it would be prudent to require the seller to pay both the owner’s and mortgagee’s policy premiums.
Source: Don R. Hancock, Hancock & McGill, Attorneys at Law

I just think in this country we have so many laws that are vague and unclear or counteract each other.It's almost impossible in a court of law to to say someone had willful intent and prove it when laws counteract each other and are unclear in themseleves.

You just have too many layers counteracting each other.

Super, I'm a little confused by D. Millers "fiduciary" input, since every attorney I know, has advised Realtors NOT to be fiduciaries, especially when representing attorneys.
Since there is no advantage price wise in Title cost in my state, it becomes meaningless to recommend one company over the other, and as in my case, the builder paid for ALL my closing cost, or others (ie. Pulte) tie it to a $20k discount in the $240k selling price when using their lender and title company.
Obviously, agents with criminal intent and who take kick backs, will disregard anything that RESPA has to say anyhow.
Our BA/Transaction Broker contract does cover our and third party compensation sufficiently I think:

" 8. COMPENSATION TO BROKERAGE FIRM. In consideration of the services to be performed by Broker, Brokerage Firm shall be paid as set forth in this section, with no discount or allowance for any efforts made by Buyer or any other person. Brokerage Firm shall be entitled to receive additional compensation, bonuses, and incentives paid by listing brokerage firm or seller. Broker shall inform Buyer of the fee to be paid to Brokerage Firm and, if there is a written agreement, Broker shall supply a copy to Buyer, upon written request of Buyer.

9. LIMITATION ON THIRD-PARTY COMPENSATION. Neither Broker nor Brokerage Firm, except as set forth in § 8, shall accept compensation from any other person or entity in connection with the Property without the written consent of Buyer. Additionally, neither Broker nor Brokerage Firm shall be permitted to assess and receive mark-ups or other compensation for services performed by any third party or affiliated business entity unless Buyer signs a separate written consent for such services."

looks good to me

Now I really have a headache!