First, we need to discuss what an ABA is and how it operates.  To understand an ABA, we need to know about the Real Estate Settlement Procedures Act, or RESPA, which was originally passed by Congress back in 1974 to improve disclosures of settlement costs and eliminate abuses in the real estate settlement process. RESPA (12 U.S. Code Sections 2607 (a) and (b) expressly prohibit certain payments for business referrals and splitting charges:

  • Business referrals

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

  • Splitting charges

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services performed.

Under RESPA a party who is compensated solely for referring a customer to a title agency has received an illegal kickback.  However, RESPA does allow for the creation of an affiliated business arrangement (“ABA”) where a real estate brokerage/company or a lender can have an ownership interest in a title insurance company/agency and receive profits from the title company to which the real estate company or lender has referred the buyer.

An affiliated business arrangement is not a violation of Section 8 of RESPA (12 U.S.C. 2607) if certain conditions are met.  The three major or umbrella conditions are:

  • The person making each referral has provided to each person whose business is referred a written disclosure, in the format of the Affiliated Business Arrangement Disclosure Statement prescribed by RESPA.
  • No person making a referral has required any person to use any provider of settlement services or business incident thereto with a few minor exceptions.
  • The only thing of value that is received from the affiliated business arrangement, except for certain allowed items, is a return on the ownership percentage interest or franchise relationship.


In this situation, the real estate company/lender may enter into an agreement to form a new jointly owned title agency.  The real estate company/lender can refer their clients to the jointly owned title agency and receive a portion of the profits of the title agency.  This is allowed by law provided that the requirements of RESPA especially regarding the ABA Disclosure are strictly complied with, and there are severe legal penalties for failure to comply the all the requirements of RESPA.

Over the years many consumer advocates and others have referred to the use of ABAs by lenders and real estate companies as “legal kickback schemes.”  They were clearly not formed with the intent to create economies of scale which would make title agency operations more efficient thus reducing costs which would result in lower fees to consumers.  They were clearly designed to benefit the bottom line of the real estate companies and lenders who have a percentage ownership interest in the jointly owned title agency to which the real estate company or lender has referred the client.  Also, there seems to be an inherent conflict of interest involved in the relationship with an ABA.  Realtors are pledged to represent the best interests of their clients, the homebuyers, however, they may be referring their client to an affiliated title company because of a pre-existing ABA agreement that provides for a percentage of the ABA’s profits to the real estate company where the realtor has his or her license.  Real estate companies and lenders do exert tremendous pressure on their sales agents and loan officers to refer clients to the ABA.



In contrast to an ABA, an Independent Title Insurance Agency, (“ITA”) such as Pruitt Title & Escrow Company is not affiliated with or controlled by any real estate company or lender.  An independent title insurance agency cannot rely on a steady stream of referrals from a realtor or loan officer whose company has a controlling percentage interest in the affiliated title company.  An independent title insurance agency must rely solely on maintaining good customer relationships for the agency’s continued existence.  The ITA strives to maintain those valued customer relationships by providing a superior level of service in every transaction so that each client will become a repeat customer and refer their family and friends to the ITA.

An ITA can exercise independent judgment when providing services such as title examination and issuing title insurance.  It can make certain to the best of its ability that the buyer is getting the “good and marketable title” required by the various regional sales contracts.  An ITA is not under the same pressure that an ABA may face “to make the deal work” by ignoring a potential title issue.  Attorneys and other personnel who work for ABAs are almost always honest, ethical, and professional in performing their duties.  However, one could make the argument that there is always an inherent conflict of interest or pressure on the ABA staff to find that the title to the property being sold is good and marketable when the successful outcome of the sales contract or loan depends on it.

ITAs are small and local and located near you.  This makes it possible for the consumer to get to know ITA’s team and have that personal interaction.

Since ITAs have smaller staff teams they have the added benefit of better interaction among the team members which allows for quicker resolutions of title problems and other issues.  This may not always be said of ABAs which may be part of a large conglomerate.

Since an ITA, such as Pruitt Title, cannot rely on being carried by a national real estate company or a national lender, it needs to always be profitable.  ITAs have learned to do this by creating superior products, offering better service, and operating more efficiently.

Consumers have the right by law to choose their own settlement services provider.  No lender or real estate can require the consumer to choose the ABA settlement company affiliated with the lender or real estate company.  Consumers should be prudent and exercise their right to choose a provider by actively comparison shopping to find the independent title agency that can provide them with excellent settlement services at good pricing rather than passively and blindly accepting the name of the ABA settlement company affiliated with that lender or real estate company.

An ITA, such as Pruitt Title & Escrow Company is beholden to no one except its clients, the home buyers and/or borrowers.  It is not obligated to increase the profit margin of some entity with whom it has entered an affiliated business arrangement.  An ITA’s only real obligation or purpose it to provide superior settlement and title insurance services to its clients at reasonable fees.  That is how ITAs will grow and prosper.