Mike LaRosa admits he probably drives real estate agents a bit crazy at times with his uber RESPA focus.

But LaRosa, chief operating officer of the Florida Agency Network (FAN), said he was cut from a compliance cloth, and wouldn’t have it any other way.

“I grew up in First American under (Vice President-Senior Operations Counsel) John LaJoie,” LaRosa told RESPA News. “He is an incredibly bright gentleman, and is extremely compliance-forward. When I came out of college, I didn’t know what an affiliated business was. I didn’t even know what a title agency was.

“But John threw the Real Estate Settlement Procedures Act in front of me and said, `Hey, we’re trying to figure out ways to partner with this real estate company. Go figure it out!’”

Figure it out he did. Now, LaRosa is FAN’s in-house RESPA attorney.

Growth in a down market

“The nice thing about RESPA is that the rules haven’t changed much since the `70s,” he said. “The same guidelines that were in place when I began my career are the same guidelines that are in place now 20-something years later. A lot of it seems arbitrary. A lot of it seems counterintuitive to smart business. But I understand why the rules are in place because the opportunity for abuse is significant. If you’re in the market and there’s no fear of enforcement, then you run into what we saw back in 2007 leading up to 2008.”

LaRosa joined FAN - a conglomerate of independent title agencies, settlement service providers, and technology companies within Florida - in 2015.

FAN consists of two wholly owned brands - Hillsborough Title, Inc. and Total Title Solutions, LLC. – plus nine affiliated companies.

“We basically partner with large real estate brokerages that have the volume to merit a standalone title operation,” he said. “We are in a very unique and fortunate position that we can be really selective about our partners right now.”

FAN’s first company - Hillsborough Title Inc. - was founded in 1984 by CEO Aaron Davis’ mother, Gail Calhoun. After college, Davis got into the financial services industry and ultimately came back and bought his mother out in 2007.

The market soon turned. But Hillsborough Title continued to thrive - in part due to its joint ventures.

“He was growing in a down market,” LaRosa said of Davis. “He was my client, and we had become friends over the years. As I continued watching him grow I knew he was on to something here. There was so much opportunity. A few years later, I ended up joining forces with him.”

In 2007, Davis entered into his first joint venture with a large real estate brokerage in the Tampa Bay area. In 2011, he began rolling out some ancillary companies to help support the title group.

“We have our own title plant. We have our own lien search department. We have our own Remote Online Notarization (RON) department. We have our own IT company. We have our own short sale division. We have our own mobile closing company, and our own mobile home division,” LaRosa said. “Everyone talks about one-stop shopping, but not everyone means it, or really cares about it.”

RESPA compliance tips

LaRosa said it’s important to have a conversation with potential joint venture partners up front so they understand that you won’t tolerate anything less than full compliance with the law.

“Say, `Look, we only put these entities together if we’re beyond reproach. So, if you’re looking for someone to kind of skate in the gray, that’s just not us. We’re not your partner.’ We’re certainly up front that we’re going to bust your chops about compliance,” he added.

Generally speaking, FANs’ partners - major real estate brokers with successful businesses and a lot to lose – are fine with such conversations.

When FAN creates an entity, the company expects every single file that leaves a broker’s office to have an Affiliated Business Arrangement (AfBA) Disclosure Form that must be provided to the consumer at the beginning of the relationship.

“I used to get so much push back about that back in the day,” LaRosa said.

He now insists partners use a form generator such as Dotloop to ensure agents automatically include a disclosure form in their file.

Another way FAN ensures compliancy with partners is to only enter into relationships with partners willing to contribute sufficient operating capital – paid from inception.

“We can’t front the capital on behalf of our partner, and we can’t allow them to wait for distributions and take a credit from those distribution payments. No. It has to be a legitimate investment. You either have money you pony up that you put at risk, or we don’t do it. We need to know that it’s capitalized legitimately from inception. That’s not always the most popular approach, but that’s how we do it.

“And regarding distributions, you can only distribute based on actual equity ownership percentages. It seems simple enough. We don’t adjust our percentages. We don’t work with a partner and say, `You had a big month this month so we’re going to pay you an additional distribution.’”

FAN prefers to have a single partner, as opposed to multiple agents with various shares. In addition, FAN has a rule that there is to be absolutely no co-mingling of resources between entities.

“Separate phone lines, separate Internet, separate toner, separate everything,” LaRosa said. “If a regulator were to walk in, they need to know this is a separate, stand-alone entity in time and space. A separate staff, a separate office.”

Although LaRosa handles most RESPA issues that come up himself, FAN also retains Marx Sterbcow of the Sterbcow Law Group for bigger ticket items.

“Often you’ll find that potential partners will ask the same question multiple ways hoping you’ll give them a different answer,” LaRosa said. “We structure these entities the way we do in order to keep all of us safe.”

AfBA advantages

LaRosa said there are numerous benefits to having AfBAs.

“I feel like we’ve been allowed access to markets we might otherwise not be,” he said. “Here locally, we are certainly a known quantity and we get plenty of direct business. We hear from brokers that they want to have a title affiliation and a mortgage affiliation to create a “one-stop-shop” opportunity. A lot of them are out there seeking out these relationships, and they are going to do it with somebody. We figure that it’s better to split potential distributions with a partner than watch an existing client with the wherewithal to create a title company walk out the back door.”

For instance, FAN affiliate Gator Title is in Gainesville, Fla.

“We don’t market in Gainesville, but we have a reputation for being good at creating affiliated business arrangements. That’s a market we would have never gone into, but an existing partner referred us to the broker/owner, and it has turned into a great opportunity for both us, and our partner,” LaRosa said.

Another advantage is that FAN can control much of the time it takes to process and close a real estate transaction, like quickly procuring a lien search or title search for a priority transaction, since they own and operate their own title plant and so many of the related ancillary services.  

“If you’re truly looking for an ancillary revenue stream, or you’re really interested in the “one-stop shop” concept, do your due diligence,” he said. “Because all things are not equal. Ask tough questions and protect yourself. At the end of the day, it’s ancillary. It’s not your core business. Just because we’re in a current environment that feels less regulated, be careful what you do because you aren’t magically forgiven for your sins of the past. Regulators can look back at your previous activities. If you want to sleep well at night and avoid putting your primary business and licenses in jeopardy, don’t take unnecessary risks when there are compliant ways to accomplish your goals for ancillary service offerings and revenue.”