The evolving joint venture landscape in title and real estate

New regulations, enforcement unlikely

When asked about the likelihood of new federal action to target joint ventures, Bunting was direct.

“I think that likelihood is pretty low,” she said. “Well, let me say it two different ways: I think the likelihood of enforcement at the federal level is very low. There may be a possibility of changes to regulations and guidance at the federal level.”

Bunting pointed to a September 2024 white paper from the Mortgage Bankers Association as a potential catalyst for regulatory shifts.

“They outlined a number of recommended reforms as it relates to regulations and guidance that the CFPB has that relates to joint ventures,” she said. “And given the sort of the posture of the current administration, it’s more likely that they might be willing to consider some of those recommendations to make the regulatory environment and the guidance that’s available more up to date from a technology perspective — and also make it make sense to consumers from a disclosure perspective.”

Davis agreed that new, sweeping federal regulations are unlikely for now.

“I think if any states do get more aggressive in their scrutiny of affiliated operations, it would be the states that tend to be more aggressive in other areas of financial services and insurance regulation,” he said.

“That said, I think we’re entering a period where JVs are already popping up in many states, and that the overall atmosphere will be pro-growth.”

Aftermath of D.C. crackdown

Last year, major enforcement action that shook the industry took place in the District of Columbia, where multiple companies entered into settlement agreements over alleged violations.

“I think after those settlements came out, anyone that might have been interested in entering into a new joint venture with real estate agent owners in D.C. put that on hold and or abandoned that effort altogether,” Bunting said. “So I think from a D.C. perspective, their investigation and settlement agreements had the intended effect.”

In August 2024, the Office of the Attorney General for the District of Columbia (OAG) tied four title companies to alleged unlawful referral practices.

The firms — Allied Title & Escrow LLC, KVS Title LLC, Modern Settlements LLC and Union Settlements — signed on to pay a combined total of more than $3.2 million under the terms of the agreement.

At the heart of the OAG’s case were joint ventures and affiliated business arrangements in which real estate agents held ownership stakes while also serving as referral sources.

According to the settlements, the companies will end practices that provided financial incentives to agents for directing title business their way. Additionally, they have agreed to either exit the D.C. title insurance market entirely or sever the ownership ties with real estate professionals.

“A real estate agent referring their customer to a JV that the real estate agent owns may be inherently illegal,” Ehrlich said. “Perhaps this could be done lawfully under RESPA, but it would be very difficult to do that lawfully under the Consumer Financial Protection Act, which generally outlaws conflicts of interest like this, even when they are disclosed.

“So while there are certainly some bad actors out there who are trying to subvert RESPA, even those who are trying to comply with RESPA may be acting unlawfully under other laws.”

Regional impacts, patchwork future

Ripple effects of last year’s enforcement action have reached further than the nation’s capital, but the effects have been uneven.

Bunting explained that while JV formations haven’t halted at the national level, companies are proceeding more cautiously.

“I think that it certainly made people take a closer look nationwide as it related to the ventures that they were putting together, as well as considering state law in those other locations and whether that could have an impact on formation of a joint venture,” she said. “But I don’t think that the D.C. action caused people to stop doing them in other locations — just take a closer look.

“There are still brokerage-owned, affiliated title entities in D.C. But I think the the formation of new title insurance entities that are owned by individual real estate agents who are also producing real estate brokers, I think those are dead for a bit, unless there’s some change in D.C.”

Davis stressed the importance of preparation in establishing a JV, including securing enough capital to sustain for six to 12 months without profit.

“You need to be serious about operating in a compliant fashion, which starts with having good resources and a commitment to doing things the right way,” he said. “And you need to be positioned and willing to build a legitimate title operation — one that operates like any traditional title operation would, and which could stand on its own if need be.”

Operational pitfalls: Inherent problems or human error?

Some critics argue that joint ventures are inherently questionable, but Bunting disagrees.

“There’s always bad actors that you know will speed as fast as they possibly can, regardless of the speed limit,” she said.

Bunting believes most violations stem not from the concept of JVs but from the day-to-day economic pressures of running them.

“Often, folks will sort of pare back or consolidate or find ways to keep a business afloat but trim costs where they can. And unfortunately, sometimes that consolidation in the trimming can present compliance challenges,” she said.

“So I just think that’s the reality of operating the joint venture is you have to be incredibly conscious in the amount of work that the joint venture can generate and produce, and whether or not that will allow the business to, in fact, be compliant.”

Some consumer advocates argue that JVs exploit the anonymity of the title insurance process. Bunting acknowledged the concern but highlighted existing legal protections.

“The law does, in fact, require a disclosure in an attempt to make the consumer aware and then tell them explicitly that they have the chance to go shop around,” she said. “From a customer service perspective, I think any joint venture owners would tell you that it provides a seamless experience for the consumer. They work together better.”