State to Crackdown on Minnesota Real Estate Agents, Title Company Relationships
It’s a common experience for home buyers:
The real estate agent or home mortgage broker, trying to be helpful, offers up the name of a title company he knows who can handle the closing.
In too many cases, though, the agent - and others - are breaking the law.
State regulators on Wednesday said they’re cracking down on the widespread practice of real estate professionals steering customers to affiliated title companies and then accepting referral fees for the business. State and federal laws prohibit direct payments for simply referring a client to a title company.
“It’s just plain illegal, and we’re going to stop the practice,” state Commerce Commissioner Glenn Wilson said.
Commerce Department officials released information on recent actions it’s taken against title companies and said several more cases remain under investigation. In the largest action, the agency ordered Santa Ana, Calif.-based First American Title Insurance Co. to shut down 35 joint venture title companies in the Minnesota housing market and pay the state a $500,000 civil penalty.
First American’s joint ventures were shams that violated state law and the federal Real Estate Settlement Procedures Act, or RESPA, Commerce officials said.
The action is the result of a yearlong investigation the Commerce Department has been conducting into title schemes, assisted by a U.S. Housing and Urban Development investigator. Several more actions will be taken in coming months, said Paul Hanson, chief examiner for Commerce.
Wilson said it’s difficult to measure the harm to individual consumers.
In Minnesota, title companies handle all the documents for closing a home purchase, and include a fee for title insurance to protect against errors in the title on a property. The fees title companies charge for closings range from $1,115 to $1,528 on a $250,000 house, according to a fee comparison provided by an independent title company in Minnetonka. Title insurance is major part of the fees.
First American agreed to the action, but it denied wrongdoing in its signed consent agreement. In a statement issued Wednesday, it said the arrangements were legal.
“Although First American believes it operated the joint ventures consistent with then-existing state and federal law, it recognizes that the regulatory landscape is changing and the company is adapting accordingly.”
According to the consent order, signed Jan. 24, First American operated 35 title offices in Minnesota since 1995. First American had a 20 percent stake in the arrangements with the remaining 80 percent ownership held by 600 real estate agents, brokers, Minnesota mortgage originators, land developers and builders who made initial investments of about $500 each.
The offices maintained nominal staff that were sometimes shared between companies. The group of real estate professionals steered customers to the title companies for closings and title insurance, and then received dividends, or kickbacks, for the business.
Hanson said the the kickbacks ranged from little to “tens of thousands” of dollars. It’s unclear how many homeowners were involved in the deals, he said.
Among the 35 companies shut down are Diamond Title Services in Brooklyn Park, Pinnacle Title Services in Roseville, Townscape Title Services in Stillwater, Residential Title Services in White Bear Lake and Title Specialists in St. Paul.
Hanson said it was more efficient to to shut down First American’s joint ventures than to litigate and get First American to pay back consumers. First American also agreed to a number of educational programs, including writing a primer on title insurance for the Commerce Department’s Web site and running education seminars for consumer and real estate groups.
Commerce officials took two other actions against affiliated business arrangements so far this year. On March 5 it fined American Residential Mortgage in Maplewood $5,000 for failing to disclose affiliated business arrangements with Titles Plus.
And on the same day it fined Gibraltar Title Agency of Edina $10,000 and ordered it to shut down affiliated title companies Clear Title, Star Title, AM Title and Sound Title. In that case it ordered Gibraltar to pay restitution to customers totaling $100,000.
Doug Miller, president of Minnetonka-based Title One Inc. and a vocal critic of such title arrangements, praised the action. Consumers should know they can shop around for a title company and compare prices. The title affiliations are so widespread they’re squeezing independent title companies such as his out of Minnesota’s market, he said.
“They’ve preyed on the most vulnerable part of the real estate transaction for the consumer. It’s title insurance. It’s what they know the least about,” Miller said.
SOURCE: The Pioneer Press