For months, New York’s Attorney General has been investigating every facet of the insurance industry and revealing one fraud after another. Every report says it is only a matter of time before he gets to the title industry. Well it seems a few other states have beat him to the punch. Colorado, California, Florida and Washington are now in open season for fraud and kickback investigations and title companies are sitting ducks.
Colorado
In Colorado, First American Title Insurance Company has entered into a settlement agreement with the Department of Insurance after its investigation into illegal Affiliated Business Arrangements. First American will be refunding portions of premiums to homeowners totaling close to $22 million. In addition, First American will end all reinsurance agreements with stated ABAs and will not enter into any new ones. The settlement agreement specifically left in question whether or not First American was charging appropriate premium amounts and left the door open to further investigation into that matter.
Only about $150,000.00 is ear marked for Colorado residents. The rest will be distributed in other states. "Pennsylvania is one of nine states where we had specific agreements with a builder or multiple builders, and it's possible that some of the homeowners were overcharged, but we still are trying to get a handle on who exactly is impacted," said Dave Schulz, spokesman for First American Title parent First American Corp. "Customers do not have to do anything. If they are affected, within three months, they will receive a letter from us and a check."
The Colorado Division of Insurance initiated the investigation after hearing from a local title company employee who was complaining that his firm couldn't compete. Also under investigation is Fidelity Financial Co. who operates title companies such as Chicago Title, Ticor, American Pioneer, National Title and Security Union. Fidelity has voluntarily ended its alleged illegal practices nationwide, state officials said.
A third title company, Land- America Financial Group Inc., has refused to settle in Colorado, state officials said. The insurance division is seeking a cease-and-desist order against the company. LandAmerica does business in Colorado through Lawyers Title, Commonwealth Land Title and Transnation Title. A spokeswoman for LandAmerica said that company was confident that its title insurance arrangements "are not scam transactions" and "do not result in any injury to consumers."
While state investigators so far have implicated only title insurance firms, Colorado Attorney General John Suthers said he will launch new investigations that will target the title companies, real-estate brokers, homebuilders and mortgage lenders that may be involved in the kickbacks.
California
In addition, California Insurance Commissioner John Garamendi last week announced he is conducting an investigation. Mr. Garamendi said his office became aware of the questionable payments when an official of First American reported them last fall. "A representative of First American came to me in late October and said this was going on," Mr. Garamendi said. "First American didn't want to participate but was forced to by competitive pressures." Mr. Garamendi did not name the company official.
"These contracts were nothing less than commercial bribes," he said in announcing his probe. Under the practice, Garamendi said, real estate agents, lenders and developers would create subsidiaries to write re-insurance policies, known as "captive" reinsurers. They then steer business to a particular title insurance company in exchange for it "ceding" a large chunk of the premium back to the reinsurer, he said.
He said that the three title insurance companies named so far in the investigations - Fidelity National, First American and LandAmerica - control 75 percent of the title insurance market in California. More subpoenas would be served soon, he said, including some to financial services companies and real estate firms that have title insurance companies.
Florida
Following in the footsteps of Colorado and California departments of insurance, Florida Attorney General Charlie Crist announced an investigation of title insurance and related industries for kickbacks and other unlawful payment activity, according to The Tampa Tribune Online.
There is a push to investigate Realtors who accept the kickbacks as well as the title companies who give them. Real estate professionals in Florida deny that receiving kickbacks is a violation a RESPA. However, Florida’s Chief Financial Officer Tom Gallagher has asked the Division of Business and Professional Regulation to fine real estate agents who he says accepted kickbacks. There is also an attempt by Senator Dennis Jones to get the Division of Business and Professional regulation to include “accepting kickbacks" as a violation of RESPA.
The practices under investigation include:
Paying advertising costs to advertise and promote the listings of Realtors and/or real estate salespersons sponsoring and hosting or paying for the sponsoring and hosting of open houses for Realtors and/or real estate salespersons and entering into affiliated business arrangements in an attempt to provide kickbacks to builders, Realtors and/or real estate salespersons or mortgage brokers.
The investigations stemming from California and Colorado involve at least nine other title insurance companies and Florida is investigating at least 50. Many of these companies are multistate doing business throughout the country. Whether those large companies, including Fidelity National Title unit LSI, formerly known as Lender's Service Inc., National Real Estate Information Services, Express Financial Services Inc., ATM Corp. and General American Corp., will be implicated in any wrongdoing is not known.
Pennsylvania
It is unclear whether the Pennsylvania Department of Insurance has joined in the kickback investigation fray. "We don't talk about whether we are or aren't investigating companies or individuals," said spokesman Rosanne Placey.
However, Pennsylvania companies are getting hit in civil suits at the very least. Fidelity National Title Insurance Co. faces a lawsuit alleging overcharging title insurance in Pennsylvania. In this case, homeowners claim the title agent should have informed them of the lower “reissue" rates, rather than charge the higher “basic" title insurance rates. Fidelity disagrees.
Cheryl Hartzman is a title insurance agent and industry expert. She specializes in consulting to title agencies and underwriters alike and offers many support services. For more information about her title company go to www.carnancolandtransfer.com. For more information about her consulting and services go to www.carnanco.com
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