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Title Insurance Companies Probed and Fined

• CALIFORNIA INSURANCE COMMISSIONER JOHN GARAMENDI ISSUES NINE SUBPOENAS AS PART OF INVESTIGATION INTO ILLEGAL KICKBACK SCHEME IN TITLE INSURANCE INDUSTRY

• INSURANCE COMMISSIONER JOHN GARAMENDI ANNOUNCES MAJOR ENFORCEMENT ACTION TO FIGHT TITLE INDUSTRY ABUSE OF HOME BUYERS AND PURCHASERS

• San Francisco Business Times: Title insurers subpoenaed over alleged kickbacks

• Realty Times: Title Companies Investigated - Again

• Building Online: 16 HOMEBUILDERS NAMED IN TITLE INSURANCE KICKBACK INVESTIGATION

Comments from the California Insurance Commissioner

"These kick-backs are illegal under state and federal law. Nevertheless, they were used to fleece homeowners of vast sums -- often more than $1,000 per home. I will not tolerate such conduct by any company that I regulate," said California's insurance commissioner John Garamendi.

"Let me make it clear: These contracts were nothing less than commercial bribes, paid by title companies to realtors, lenders, and developers. I regulate the title companies that paid the bribes, and I’m enforcing the law against them. But on the other side are the people who accepted the bribes, and they are not under my regulatory authority. Therefore I will share the information I gather with the Governor and ask him to join us in this effort to protect consumers. His immediate action, combined with the efforts already underway, can help stop the bribe-takers and their fleecing of California consumers." said California's insurance commissioner John Garamendi.

The law

Both state and federal law prohibit rebating by title insurers. The main California statute is Insurance Code section 12404, and the key language is:

It is unlawful for any title insurer, underwritten title company or controlled escrow company to pay, directly or indirectly, any commission, compensation, or other consideration to any person as an inducement for the placement or referral of title business.

Similarly, the federal Real Estate Settlement Procedures Act (“RESPA”) prohibits such referral fees. 12 U.S.C. § 2607 provides in pertinent part:

No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. . . . No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

Insurers to pay kickback fines and customer refunds

In July 2005, three of California's largest title insurers agreed to halt what officials called a kickback scheme that cost home buyers $25.4 million, and will pay more than $38 million in refunds and fines.  The three companies are:

1. LandAmerica Financial Corp.

2. First American Title Insurance Co.

3. Fidelity National Financial Inc.

The three companies and their subsidiaries paid kickbacks to lenders, builders, and real estate agents to steer homeowner title insurance business. In California, 82,000 California homeowners have been ripped off by the title insurance industry.

The three insurance companies and their subsidiaries would charge homeowners buying title insurance additional reinsurance fees of hundreds of dollars each. The insurance companies, in turn, would send the additional fees to the reinsurance companies owned by the builders, lenders and real estate agents — the very same entities that referred the homeowners to the insurance companies in the first place.