Mortgage kickbacks land Kentucky firm in hot water

by Ryan Smith28 Oct 2013

The Consumer Financial Protection Bureau is suing a Kentucky law firm for allegedly paying illegal kickbacks for mortgage settlement referrals.

The CFPB filed suit in federal court Friday against Borders & Borders, PLC, alleging that the Louisville law firm operated a network of shell companies to funnel kickbacks to other companies in exchange for referrals of mortgage settlement business. The Real Estate Settlement Procedures Act (RESPA) forbids giving or receiving kickbacks in exchange for referrals of settlement business for federally regulated mortgages.

“Today’s action sends a clear message that companies cannot design business structures to hide illegal kickbacks,” said CFPB Director Richard Cordray. “The CFPB will continue to pursue companies that seek to profit from convoluted arrangements that limit competition and hurt honest businesses.”

The CFPB alleges that Borders & Borders operated nine “joint ventures” with owners of real estate and mortgage brokerages, using the joint ownership of the shell companies to disguise the payoffs as “legitimate profit sharing.”

When a real estate agent or mortgage broker involved in the scheme referred a homebuyer to Borders & Borders, the law firm made sure the title insurance was issued by one of the joint ventures, according to the CFPB. The profits would allegedly be split between Borders & Borders and the referring real estate or mortgage brokerage.

According to the CFPB, these joint ventures weren’t “bona fide entities” – they didn’t have their own office space, email addresses or phone numbers, and all nine shared a single independent contractor – also a Borders & Borders employee. Each joint venture issued title insurance solely for homebuyers who had been referred by Borders & Borders. According to the CFPB, the nine shell companies didn’t even advertise to attract other business. The CFPB alleges that all nine companies existed solely as “a conduit for kickbacks.”

The investigation that led to the CFPB lawsuit was initially conducted by the Department of Housing and Urban Development. After receiving notice that it was the subject of a HUD investigation, Borders & Borders shut down all nine shell companies, according to the CFPB. The case was transferred to the CFPB in 2011 after the agency was given authority to enforce RESPA.

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