The next Indiana Attorney General needs to vastly strengthen that office's real estate regulatory effort. Although bestowed with substantial powers under IC 4-6-12 et seq. and related statutes, the AG's Homeowner Protection Unit has not been an active regulatory force. I know because I was on the front line of the inter-agency real estate regulatory effort when I was head of the Title Insurance Division. Behind the scenes, complaints about the HPU by other federal and state regulators and players in the real estate industry were common.
Because real estate regulation inevitably involves multiple players and multiple regulatory bodies, it is essential that all the agencies be on the same page when it comes to enforcement. The Department of Financial Institutions (DFI), the Title Insurance Division and Secretary of State (SOS) were all aggressive in terms of pursuing mortgage fraud, for example. The HPU was not. People were afraid to publicly complain about the HPU, but with a new Attorney General on the horizon, it creates the perfect opportunity for those interested in real estate regulatory reform to insist on changes in how the HPU operates.
Here are reforms I would suggest:
First, the AG's Homeowner Protection Unit needs to become a full partner with the Title Insurance Division, DFI and the SOS. It is essential that not only information be shared between the agencies, but that expertise also be shared. At the Title Insurance Division we had assembled a staff that had over 100 years of experience in real estate law and title insurance. I encouraged my staff to help out the HPU, SOS and DFI understand how title agents operate and real estate closings were conducted. The SOS and DFI accepted our offer and in turn provided assistance to us when we needed help. The SOS and DFI were almost always good about sharing information too. The odd regulator out was the AG's HPU which did not play an active regulatory role.
Second, the AG's HPU has the power under federal law and Indiana law to enforce the Real Estate Settlement Procedures Act (RESPA). It has been directed by the Indiana General Assembly to report on its enforcement of RESPA. When I was at the Title Insurance Division, the AG has declined to enforce RESPA saying it is not clear the AG has the authority to do so. I'm not sure how much more clear the law needs to be. The AG has the authority and needs to exercise it. We at the Title Insurance Division only had authority over title insurance agents. Real estate companies that are shaking down title agents for a "thing of value" in return for their business are violating RESPA and Indiana law. It's not fair that the title insurance agent gets disciplined for paying for title insurance referrals while the real estate companies and individual agents demanding payment for their business gets off without any punishment.
Third, the AG, in particular the HPU, needs to partner with the other agencies in going after mortgage fraud. County prosecutors simply do not have the resources or the ability to understand fraud in a complex real estate transaction. The Attorney General, working in cooperation with the Title Insurance Division, the SOS, and DFI, is in the perfect position to assemble a Mortgage Fraud Unit that will investigate mortgage fraud and lend assistance to prosecutors who choose to prosecute that fraud in their communities. The AG could even offer a deputy to assist or be deputized to actually conduct the prosecution. There is nothing in the law that prevents the Attorney General's Office from offering these resources to county prosecutors.
Fourth, the Attorney General is responsible for regulating real estate agents and appraisers. Appraisers are almost aways involved in mortgage fraud schemes. Even if the county prosecutor will not prosecute an appraiser involved in fraud, the AG has the authority to fine that appraiser and to yank his or her license. Likewise, real estate agents violating unfair competition laws like RESPA, should know that they face the possibility of being fined or losing their license. Presently, with the AG not sanctioning bad real estate agents and the companies they work for, their only concern is a HUD enforcement action. While HUD was more than willing to go after a few of the Indiana real estate companies who are the worst in terms of violation RESPA and other laws, HUD does not have the resources to do comprehensive enforcement of real estate law in all 50 states. That's why it is imperative that the Indiana Attorney General also have an enforcement effort at the state level. HUD officials indicated to me they were more than willing to assist the Attorney General in developing the regulatory tools necessary to enforce RESPA and go after mortgage fraud. There simply was no interest on the part of the AG and its Homeowner Protection Unit to develop that effort.
Fifth, to come up with ideas to combat mortgage fraud and the foreclosure problem, numerous players in the Indiana real industry have been meeting for quite some time to discuss real estate reform. Many state, and sometimes federal, regulators attend. These are people who are on the front line of what is going on and their reforms usually are spot on in terms of addressing problems. For example, one mortgage fraud proposal involves a change in what information that is required to appear on a deed in Indiana. Requiring the additional information on the deed brings a transparency to the real estate transaction that makes it much more difficult to hide mortgage and other real estate fraud. The next AG needs to listen to these reformers and push their ideas to become law during the next legislative session.
We need an Attorney General, Republican or Democrat, who will take a more aggressive approach to real estate regulation than is currently the case. Now is the time to request that the Attorney General candidates make a strong commitment to protecting Hoosiers who are the victims of mortgage fraud, unfair competition in the real estate industry, or the foreclosure epidemic.
Previously, I have offered other thoughts on Indiana real estate regulation on this blog. Some of those are as follows:
Linda Pence is Right: My Experience with the Failure of the Attorney General's Office to Fight Mortgage Fraud (10/23/2008)
Consolidating Real Estate Regulation in Indiana - Where do the Governor and Attorney General Candidates Stand on the Issue? (10/5/2008)
Real Estate Reform - Why Indiana Needs It (9/16/2008)
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