Illinois Buyer Rights Violation Are Routine, says Arthur van der Vant

Noted real estate expert and Illinois Receiver Arthur van der Vant points to flaws in the disclosure process and how buyer rights may be violated by the seller and seller’s attorney.

According to Arthur van der Vant, the average person buys or sells a home only two or three times in his or her lifetime.  The homebuyer is a captive customer in the hands of the lender, the real estate broker, and the attorney.  He or she has no basis for judging whether a particular service, settlement fee or charge for representation is reasonable; particularly when the amount of the fee or charge is small relative to the total purchase price of the property.  Once a client is committed to a particular sale/purchase, Arthur van der Vant notes that he or she is in no position to question legal advice or charges which may be tacked on by various partial participants in the settlement process. According to Arthur van der Vant:

1. HUD’s selective enforcement policy of Section 9 does not change the Real Estate Settlement Procedures Act of 1974 established by the Congress of the United States.  However, says Arthur van der Vant, HUD’s selective enforcement policy allows different States to form different customs in respect to selection of title insurance (Seller v. Buyer), which is not in compliance with the Section 9.

1. In States in which it is customary for a Seller to choose the title insurance company, Arthur van der Vant points out that the most often heard argument is that a Seller has a right to choose a title insurance provider as a condition of a transaction is because the Seller pays for it.  Even though a Seller may pay for many things, such as Buyer’s loan costs, the Seller cannot require the Buyer to use any specific lender as a condition of the transaction.  Arthur van der Vant says that a Seller may pay/credit Buyer’s cost of hazard (property) insurance; however, the Seller cannot require the Buyer to use any specific casualty insurance company as a condition of the transaction.  A Seller may pay/credit Buyer’s cost of the property inspection, but the Seller cannot require the Buyer to use any specific home inspector as a condition of the transaction.  Similarly, a Seller may pay for the cost of the title insurance, but cannot require a Buyer to use any specific title insurance provider as a condition of the transaction, maintains Arthur van der Vant.

1. In the State of Illinois, it is customary for Seller to choose the title insurance provider, cites Arthur van der Vant. Under the RESPA and the Title Insurance Act of Illinois, Section 18(b) provisions, a Controlled Business Arrangement (CBA) Disclosure is required at the time of recommendation or prior to the recommendation, whenever a settlement service provider refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.  According to Arthur van der Vant, such a disclosure is not properly given in the State of Illinois, because it is given late at the time of a closing.  At the time of a closing it is too late for clients to know that they had a choice in selecting the title insurance provider.  According to Arthur van der Vant, what good is a disclosure given at the time of a closing, if clients are not able to exercise their right?  Often Seller’s attorney may receive compensation for handling the title insurance matter in addition to and beyond the fees paid by the client for representation.  Such a lack of disclosure is a breach of attorney’s fiduciary duty to his/her client, notes Arthur van der Vant. (see Moll v. US Life Title Ins. Co., 170 F. Supp. 476, In re Equitable Office Bldg. Corp., 83 F. Supp. 531 (S.D.N.Y.), rev’d on other grounds, 175 F.2d 218 (2d Cir. 1949); New York State Opinion 351 (1974); New York State Opinion 320; ABA Comm. on Ethics and Professional Responsibility, Opinion 394 (1962); The Lawyer’s Code of Professional Responsibility, New York Judiciary Law (Appendix) DR 1-102(A)(4), EC 5-16, DR 5-101(A), DR 5-107(A) and EC 6-1 (McKinney 1975).).

1. Many Attorney Programs offered by title insurance providers, says Arthur van der Vant, may be in violation of 12 U.S.C.A., 24 CFR § 3500.14(Prohibition against kickbacks and unearned fees).  Many attorneysperform minimal, if any, title services in connection with the issuance of the title insurance policy (such as placing an application with the title company), asserts Arthur van der Vant.  The payment of a commission or portion of the title insurance premium by the title insurance provider to an Attorney, or receipt of a portion of the payment for title insurance under circumstances where no substantial services are being performed, is a violation of Section 8 of RESPA [12 U.S.C.A. § 2607].

1. RESPA was passed a long time ago (1974), but, according to Arthur van der Vant,  only recently in Illinois, title insurance premiums paid to attorneys by title insurance companies for handling title insurance matters started to be disclosed on HUD-1 Form (Closing Settlement Statement).  Until a few years ago, according to Arthur van der Vant, those fees paid to attorneys by title insurance companies were not disclosed.

1. Timely Controlled Business Arrangement (CBA) Disclosure is still not properly given as required under the RESPA or the (215 ILCS 155/) Illinois Title Insurance Act. Arthur van der Vant notes that Illinois’ “customary” way of doing business (seller’s attorney choosing the title insurance provider and disclosing at the time of a closing) may be an infringement upon the law and title insurance underwriters may be liable for their agent’s violation (see Sears Mortg. Corp. v. Rose 134 N.J. 326,634 A.2d 74).

In Illinois it is a bonanza for competitive forces in the title conveyance industry, which in a number of areas of the state have led to the payment of referral fees, kickbacks, rebates and unearned title examination fees as inducements to those persons who are in a position to refer settlement business.  According to Arthur van der Vant, even more alarming is the fact that the laws may be broken so often that it became a “customary practice” to violate buyer’s right to choose title insurance provider under Section 9 of RESPA, as well as not properly disclosing premiums earned from title insurance matters.

Arthur van der Vant encourages the reader to research this subject further and to familiarize him or herself with current RESPA regulations, as well as any future changes.  More information can be found at the U.S. Department of Housing and Urban Development (HUD) website www.hud.gov. The data contained in this publication is provided by Arthur van der Vant for information purpose only.  The accuracy of the data contained herein is deemed reliable, but is not guaranteed.  The author and/or publisher do not engage in rendering legal, accounting, or any other professional advice, and suggests that the services of a professional in those fields should be sought.  Any liability, loss, or risk, personal, or otherwise incurred as a result of using any of the information herein stated is not the responsibility of the author and/or publisher.

Arthur van der Vant is a receiver and assignee based in Cook County, Illinois. He is an expert in real estate and corporate turnaround management with over 10,000 projects to his credit. As a member of several professional organizations, including the Turnaround Management Association and the National Association of Bankruptcy Trustees, Arthur van der Vant is up to date on every aspect of his profession. He is one of only a handful of Certified Commercial Investment Members (CCIM), and has trained at the World Bank Headquarters in Washington DC.

For more information or to contact Arthur van der Vant, please call 800-496-9107
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