From: Biwah 
Newsgroups: misc.invest.real-estate
Subject: LAT: State Probing Two Title Insurers
Date: Wed, 23 Feb 2005 17:34:46 +0000

Los Angeles Times

State Probing Two Title Insurers
Garamendi is looking into alleged kickbacks paid by the companies for client
referrals.

By Annette Haddad
Times Staff Writer

February 23, 2005

State Insurance Commissioner John Garamendi said Tuesday that he was
investigating two big title insurers as part of a probe into alleged
kickbacks paid to builders, lenders and Realtors in exchange for client
referrals.

Garamendi said Fidelity National Financial Inc. and LandAmerica Financial
Group Inc. had been involved in complex arrangements that amounted to paying
bribes for referrals while jacking up the cost of title insurance for home
buyers. He issued subpoenas ordering the companies to produce documents and
their executives to appear at a public hearing in April.

"Title insurers are paying kickbacks by unnecessarily raising the price of
premiums and splitting the overcharge with other conspirators," said
Garamendi, making the announcement at a new-home tract in Sacramento, where
he said buyers were being "fleeced" by as much as $1,000 per transaction.
"This is wrong."

An as-yet-unknown number of home buyers may have been overcharged hundreds
of millions of dollars in title insurance premiums, Garamendi said. State
and federal law prohibits title companies or others involved in real estate
transactions from paying incentives or referral fees to generate business.

Mortgage lenders Citigroup Inc. and Wells Fargo & Co. and at least two real
estate companies ‹ Re/Max International Inc. and a unit of Century 21 Real
Estate Corp. ‹ played roles in the schemes, Garamendi said.

Because he has no jurisdiction over those companies, Garamendi said, he has
asked Gov. Arnold Schwarzenegger to have the appropriate regulators
investigate.

Tuesday's announcement comes on the heels of a settlement reached Friday
between Colorado regulators and another major title insurer, Santa Ana-based
First American Corp., which agreed to pay $24 million to consumers
nationwide ‹ including those in California ‹ without admitting liability or
wrongdoing.

The investigations by the California Department of Insurance and other state
regulators represent a new line of inquiry into the insurance industry,
which last year became the target of a bid-rigging probe by New York Atty.
Gen. Eliot Spitzer. No title insurers have been linked to Spitzer's
investigation.

Title insurance is required by lenders to guarantee that there are no other
ownership claims on a property they are financing.

The three title companies write about 75% of the policies in California.
Garamendi is alleging that Fidelity National and LandAmerica paid kickbacks
by setting up so-called reinsurance companies with builders, banks and
Realtors, and then sharing some of their premiums with those reinsurers.

There is virtually no risk ‹ and no need ‹ for the reinsurers, Garamendi
said, because the loss rate on typical title policies is a "very low" 3% to
5%.

"These contracts were nothing less than commercial bribes," said Garamendi,
adding that he has been working with regulators in Colorado and Washington
state.

Executives at Jacksonville, Fla.-based Fidelity National, whose Chicago
Title unit is a big player in California, did not return calls seeking
comment. Before Garamendi's announcement, Fidelity Senior Vice President
Daniel Murphy told Bloomberg News that the company had stopped all
reinsurance contracts with builders and was in settlement talks with
Colorado regulators.

LandAmerica spokeswoman Lloyd Osgood said the Richmond, Va.-based company
had been cooperating with Garamendi's office since it was first contacted in
November. The company also is in discussions with Colorado regulators.

LandAmerica's reinsurance arrangement was designed in accordance with the
Real Estate Settlement and Procedures Act, the federal law that governs real
estate transactions. "There was a real transfer of risk so the arrangement
was not a scam," Osgood said.

The federal government has said that reinsurance is a legitimate business
when it comes to the mortgage industry, and through the Department of
Housing and Urban Development has set up guidelines for lenders and insurers
to follow. Beginning in 1997, title insurers began applying the same
guidelines to arrangements with builders as well as lenders and real estate
firms, and the practice proliferated.

But no regulator ‹ federal or state ‹ has vigorously reviewed the
arrangements until now.

"We've been waiting for clarity," said Jim Dufficy, vice president and
regulatory counsel for First American. "Everybody was interested in what the
regulators had to say."

When the states began their investigations last fall, First American decided
to "stand up and eliminate any question of impropriety" by settling with
Colorado and cooperating with California, Dufficy said. Among the states'
concerns is whether buyers are being overcharged.

Osgood of LandAmerica said that buyers had an "opt out option" that allowed
them to purchase title insurance from another company. But as with many line
items in a real estate transaction, consumers often are overwhelmed or
simply don't know that certain property settlement fees are negotiable.

Garamendi acknowledged Tuesday that when he refinanced his home recently, he
was unaware that he could have shopped around for a more competitive title
insurance rate.

First American said that because of its settlement with Colorado, it would
take a fourth-quarter pretax charge of $24 million and report fully diluted
earnings per share of 76 cents for the fourth quarter and $3.83 for the full
year 2004.

Shares of all three title companies fell in New York Stock Exchange trading
Tuesday. LandAmerica shares lost 3.3%, or $1.83, to $53.12. Fidelity
National shares fell 2.9%, or $1.33, to $44.01. And First American slipped
1.4%, or 51 cents, to $35.61.

Bloomberg News and Associated Press were used in compiling this report.


http://www.latimes.com/business/la-fi-insure23feb23,0,6265000.story