The Title Insurance Vultures
Sightings from The Catbird Seat
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April 8, 2005
Title Insurance Fraud
on the Upswing
There is an all too familiar scenario for home purchasers and refinancers that has consistently been one of the major mortgage-related consumer complaints to state and federal agencies for the past few years — title insurance trickery and “good faith estimates” of settlement costs that turn out to be hundreds (if not thousands) of dollars off the mark.
At least ten states are investigating alleged title insurance fraud. These investigations involve not only a number of America’s top title insurance companies but two super-size lenders, a national real estate company, and a large number of large homebuilding corporations.
One scheme under scrutiny in California, Washington and Colorado, is very complicated and involves not only the title company and the middleman — the lender, homebuilder or real estate company — but a reinsurance company, usually a subsidiary of the middleman.
In New York, Attorney General Eliot Spitzer is wrapping up a two-year probe. he is expected to accuse major title insurers of charging inflated fees that let them cover kickback payments to major developers.
In Florida, a title agent accused of stealing more than $1.1 million in customer escrow funds took the money – along with her boyfriend and coworkers – on a Las Vegas junket, but didn’t bet on getting caught.
Kathryn Knight, 37, also known as Kathryn Weed, was operating Weed & Associates Title Services when American Pioneer Title Insurance Company conducted an audit and discovered discrepancies in Weed & Associates? escrow account.
Fraud detectives determined that Knight misappropriated in excess of $1.1 million from the escrow account and used these funds to buy vehicles, the Las Vegas getaway and make a down payment on a $9 million land purchase. Her title agent license was immediately revoked and she faces up to 60 years in prison if convicted on the charges, according to Florida’s Division of Insurance Fraud.
What to Watch for
Different or previously undisclosed charges for processing and other charges may appear out of nowhere on the HUD-1 settlement sheet. You are dealing with a number of entities, including a lender, a real estate professional, settlement agent and often a mortgage broker. Be sure to find out about the services and fees of each one ahead of time and make sure the actual charges match the estimates.
For example, when a property owner sells or refinances his or her house, she should expect to pay certain fees, including fees to the real estate agent, as well as to the settlement agent.
Title companies generally act as settlement agents. As such, they must establish and maintain escrow accounts which contain assets held in trust.
Settlement agents are also required to track all receipts and disbursements from each settlement and escrow account, and, among other things, affirmatively agree to secure and file all documents which are part of the transaction.
In exchange for performing these services, the title company charges customers fees as well.
Be alert, read the documents and ask questions about new or previously undisclosed fees. If you have recently sold or refinanced your home and paid a lot of unexpected or undocumented fees in connection with your transaction, you should file a consumer complaint.
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May 23, 2006
TITLE INSURERS AGREE TO
First American and Fidelity to
Change Practices and Reduce Rates
State Attorney General Eliot Spitzer and Insurance Superintendent Howard Mills today announced agreements with two leading title insurance companies to resolve investigations related to illegal rebates and referral fees.
Under the first-of-their-kind agreements, Fidelity National Title Group, Inc. and First American Title Insurance Company will seek title insurance rate reductions of 15 percent for all properties up to $1 million in New York.
“This settlement should greatly benefit New York home buyers who for too long have paid too much for their title insurance,” said Spitzer, who noted that New York title insurance rates are the highest in the nation….
The Attorney General and the Superintendent began the investigation of title insurance industry practices in 2004 as part of their investigation of bid rigging and steering in the property and casualty insurance market.
The new probe revealed evidence of an illegal scheme by which real estate developers would receive free or discounted title insurance in other states in exchange for giving their New York business to the settling insurance companies. These discounts were not available to home purchasers and small businesses, who in effect subsidized the illegal rebates by paying the “full freight” of New York’s high title insurance rates. The investigation also found that the insurance companies paid illegal referral fees to their customers’ representatives who did not perform any substantial services.
Both companies agreed to end these illegal practices and also agreed to ensure that home buyers are not subject to last minute “add ons” at real estate closings (last minute charges from title agents). In addition, the companies will establish web sites that will enable consumers to calculate the New York regulated title insurance premium for themselves.
Together, Fidelity and First American account for more than half of the title insurance market in New York, and the agreement is expected to provide significant benefits for millions of New York home buyers. The Attorney General commended First American for its initiative in reaching today’s agreements and acknowledged both companies’ cooperation.
The joint investigation of other title insurers and title agents is continuing.
Title insurance protects property owners from potential losses that could result from a claim or disputes regarding title in a real estate transaction. In 2004, New York title insurers collected about $1.1 billion in premiums.
Under New York law, title insurance rates are filed with and approved by the State Insurance Department. It is illegal for title insurance companies to charge anything but the filed and approved rate. New York law also prohibits title insurers from paying rebates to their customers and certain referral fees to their customers’ representatives. The New York State Insurance Department will hold hearings later this year to review New York title insurance rates and related matters….
The investigation underlying today’s agreements was conducted by Assistant Attorneys General Hannah K. Flamenbaum, Ethan Zlotchew, Nancy Haber, James Park, Maria Filipakis, Matthew Gaul and Anita Barrett under the direction of David D. Brown IV, Chief of the Attorney General’s Investment Protection Bureau.
Susan Donnellan, Deputy General Counsel of the New York State Department of Insurance, and Jon Rothblatt, Principal Attorney, led the Insurance Department’s investigation.
April 26, 2006
NAIC Addresses Congress
On Title Insurance
Testimony Highlights Regulators’ Efforts
To Uncover Illegal Kickbacks
WASHINGTON, D.C. – Speaking today on behalf of the National Association of Insurance Commissioners, (NAIC) Colorado Deputy Insurance Commissioner Erin Toll told a key U.S. House panel about efforts by state insurance officials to uncover and address pervasive kickback schemes within the title insurance industry.
“State insurance officials are working aggressively to uncover and prevent improper business practices by title insurers and agents,” said Toll to the U.S. House Financial Services Subcommittee on Housing and Community Opportunity. “We have imposed penalties, ordered restitution, and shut down sham business arrangements.”
Title insurance is a necessary and unique insurance product that protects home buyers and lenders from problems that may arise with a real estate title, but also presents many sensitive consumer protection issues. Colorado and other states have investigated various schemes to provide illegal kickbacks to settlement providers. These investigations have led to numerous actions, including two Colorado-led multi-state settlements to provide wronged consumers $25.3 million in restitution. Settlements negotiated by all states total nearly $50 million so far.
“Our investigations show a black market has been created where good actors can’t complete with bad ones,” continued Toll, who also co-chairs the NAIC Title Insurance Issues Working Group. “The states have initiated an exhaustive process to level the playing field and to ensure a free and healthy competitive market.”
Toll also shared various solutions that states are exploring to address market problems. She called attention to legislation passed by the Colorado General Assembly that goes beyond current federal housing laws to provide tougher penalties for wrongdoers and restitution for harmed consumers. She also suggested improved cooperation between and among state and federal regulators.
To view the entire testimony, you can visit the NAIC Web site:
Testimony Before the House Subcommittee on Housing and Community Opportunity regarding State Insurance Regulators’ Investigations of the Title Insurance Industry
About the NAIC
Headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and five U.S. territories. The association’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, it is the oldest association of state officials.
For more information, visit NAIC on the Web at:
May 1, 2005
Sixteen builders alleged to have
received illegal kickbacks.
By Steve Zurier, Builder Online
THE HOME BUILDING AND TITLE INSURANCE industries were in damage control mode this spring after it was widely reported in early March that 16 home builders allegedly received kickbacks in exchange for sending business to First American Title Insurance Co.
The names of the 16 builders (see “Naming Names,” below) were first made public in the Denver Post when Erin Toll, Colorado’s deputy commissioner of compliance in the state’s Division of Insurance, told the newspaper that First American released the names as part of the state’s investigation. Similar probes surrounding illegal title insurance kickbacks are under way in California and Washington state.
At issue is that the title insurance companies allegedly inflated premiums to finance the kickbacks to builders and lenders. According to the California Department of Insurance, under the scheme, home builders formed wholly owned subsidiaries known as captive reinsurance companies to write reinsurance policies.
Reinsurance is insurance purchased by insurance companies when they can’t cover all the losses that the policies they write may incur. The problem is that these particular reinsurance companies have yet to pay out any claims, which is why state insurance officials allege the money sent to the reinsurance companies is a flat-out kickback.
Larry Seay, CFO of Meritage Homes, one of those listed, says Meritage voluntarily ceased participating in captive reinsurance transactions until government and industry officials can sort out the issue.
The builders thought these were perfectly legal and acceptable practices,” says Seay. “These relationships with the title companies are disclosed to home buyers, and we make it clear that the buyers don’t have to go to our title company, they can go someplace else.”
Colorado’s Toll isn’t buying the party line from the home builders.
“It’s been eight years since the conception of these arrangements and not a single claim payment has been made,” says Toll, who spoke to the American Land Title Association on March 9.
Toll says she launched the investigation after hearing “whispers in the hallways” about captive reinsurance and after discussing the topic in-depth with colleagues from California and Washington at National Association of Insurance Commissioners meetings. Toll says her hope is that she can settle with the title insurance companies and encourage HUD and the state attorneys general to prosecute the builders and lenders. Toll says she’s received calls from at least 25 state governments but that doesn’t mean 25 investigations are under way.
At press time, First American was the only title company to sign a settlement, and since state and federal officials had just learned of the alleged illegal schemes, it was too early for the attorneys general or the federal government to develop a case and take action.
First American signed a consent order with Colorado in February, agreeing to stop its reinsurance arrangements. Company officials admitted no wrongdoing, saying they decided to fully cooperate with the state as soon as it presented the consent order. First American agreed to refund $24 million to consumers. Other title insurance companies named in the probe include Fidelity Financial Co. and LandAmerica Financial Group.
In mid-March, California Insurance Commissioner John Garamendi subpoenaed six of the state’s leading home builders, real estate firms, and mortgage companies to testify at a public hearing on captive reinsurance held on April 4. The home builders called to testify include William Lyon Homes, KB Home, and J.F. Shea Co. The April hearing focused heavily on testimony by LandAmerica Financial Group and Fidelity Financial Co.
In Arizona, Erin Klug, of the Arizona Department of Insurance, says the state has made an inquiry into the reinsurance situation after three unnamed title insurance companies complained that the captive reinsurance arrangements created a playing field that wasn’t level. Klug says the three title insurance companies approached the agency at roughly the same time First American signed its consent agreement with Colorado.
An official from HUD would not confirm that the agency was investigating captive reinsurance.
Here’s the list of the 16 builders that allegedly received kickbacks from First American Title Insurance Co. for sending title business the company’s way:
Artistic Homes, Beazer Homes, USA Citation Homes, Engle Homes, Fulton Homes, J.F. Shea Co., John Laing Homes, KB Home, Maracay Homes, M.D.C. Holdings, Meritage Homes, Orleans Homebuilders, Pulte Homes, Ryland Group, Warmington Homes, William Lyon Homes.
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MORE TITLE VULTURES TO COME
But before you fly away, take a peek below at some of
the nests where more INSURANCE VULTURES and
hairy-legged VAMPIRE BATS have been sighted...
ACE UP THE SLEEVE
AIG: THE UN-AMERICAN INSURANCE GROUP
ALLIED WORLD ASSURANCE
AMERICAN SAVINGS BANK: BEHIND THE BLINDS
THE BANKRUPTCY BUZZARDS
THE BERMUDA FRAUDS
THE CHUBB GROUP
CITIGROUP: VAMPIRES IN THE CITY
CONFESSIONS OF A WHISTLEBLOWER
A CONNECTICUT YANKEE IN KING KAMEHAMEHA’S COURT
THE CROSSROADS GROUP
DIRTY GOLD IN GOLDMAN SACHS
DIRTY MONEY, DIRTY POLITICS & BISHOP ESTATE
THE EAGLE HOODED: THE 9-11 COVERUP
FIRST INSURANCE COMPANY OF HAWAII
THE GREAT NEST EGG ROBBERIES
HAWAIIAN AIR LINES
HAWAIIAN INSURANCE COMPANIES
I SING THE HAWAIIAN ELECTRIC
THE KAMEHAMEHA SCHOOLS PENSION PLAN
KEMPER INSURANCE COMPANIES
LETTERS TO THE INSURANCE COMMISSIONERS
MARSH & McLENNAN: THE MARSH BIRDS
MARSH & McLENNAN’S MARSH AFFINITY SERVICES
NESTS OF THE INSURANCE VAMPIRES
THE PRUDENTIAL: A NEST ON SHAKY GROUND
RICO IN PARADISE
THE SILENCE OF THE WHISTLEBLOWERS
THE TORCH OF ERIC SHINE
THE PIRATES OF PUNALUU
THE POOP ON AON
THE PUNA CONNECTION
THE ROYAL & SUNAMERICA
TRANSYLVANIA TRAVELERS IN ST. PAUL
CITIGROUP: VAMPIRES IN THE CITY
VAMPIRES IN THE VESTA INSURANCE GROUP
WHAT PRICE WATERHOUSE?
WILLIAM SIMON SAYS…
YAKUZA DOODLE DANDIES
ZEPHYR INSURANCE COMPANY
ZEROING IN ON ZURICH FINANCIAL SERVICES
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Last Update October 4, 2006, by The Catbird