Six builders will pay $1.4 million in HUD settlement

The United States Department of Housing and Urban Development (HUD) has announced a settlement agreement with six major U.S. home builders -- KB Home, Beazer Homes, Technical Olympic USA, Pulte Homes, Meritage Homes and Ryland Group.

The six home builders will pay a combined $1.4 million for violations of the Federal Real Estate Settlement Procedures Act. Payouts range from $466,000 from Pulte Homes to $52,000 by Technical Olympic USA.

HUD said the home builders used the “complex business practice” of issuing their own “captive” title insurance to homeowners, an “unnecessary” step in single-family home buying, the agency said.

HUD describes captive title reinsurance as “a practice whereby a title insurance company transfers a portion of the risk and title premium to a company owned by the builder, lender or real estate broker referring business to the title insurance company.”

“It’s increasingly clear to us that these complicated business arrangements serve no other purpose than to hide referral fees and kickbacks, which are expressly forbidden by law,” said Brian Montgomery, federal housing commissioner.

Additional settlements stemming from the insurance arrangements have, in the past year, totaled $4.95 million, according to HUD.