Title Firms Meet in Costa Mesa on Halting Kickbacks to Brokers

Major Orange County title firms, meeting Friday over reports of rampant kickbacks between title firm and real estate agents, said they are banding together to stop the illegal practice.

State regulators are already investigating allegations that some California title companies engage in unlawful quid-pro-quo deals with real estate agents. Title firms give kickbacks such as cash, computers and free printing in exchange for lucrative title insurance business.

In a self-policing effort, the title firms met at the Center Club in Costa Mesa to discuss how to curb kickbacks. Firms that continue to engage in the practice would be turned in to the state Department of Insurance, which regulates title companies, and the federal Department of Housing and Urban Development (HUD).

“The general consensus was that they want to stop, but the title companies feel they can’t really police it themselves,” said Frank Verrill, president of Real Estate Image, a 10-year-old Santa Ana printing shop. Verrill helped put together the meeting.

Title executives say a sluggish real estate market has sparked increased competition for title businesses. They claim real estate brokers are increasingly demanding subsidies in exchange for business. Real estate brokers say only a few bad apples in their business participate in the kickbacks.

“We have met with several of the major title groups and firms on this issue,” said Gary Thomas, president with ReMax South County in Mission Viejo, who is head of the Controlled Business Task force for the California Assn. of Realtors, a trade group.

Thomas said the CAR task force is going to meet next week on the issue.

But title firms aren’t the only firms involved in real estate kickbacks. Dozens of sources in the mortgage banking industry, most of whom wished to remain anonymous, claim real estate agents are also demanding kickbacks from them in exchange for business.

Tustin mortgage broker Kevin Budde, who chairs the single-family housing committee for the California Mortgage Bankers Assn., a trade group, said the problems between mortgage brokers and real estate agents have never been worse.

“No one is doing anything about this and the consumers are getting hurt,” he said. “We write letters, we call HUD and they do nothing. It’s horrible.”

At one Southern California real estate brokerage, Budde said the firm demanded an “under the table” $25,000 cash payment from his office as the price of calling on Realtors at the firm for business. In addition, the real estate agents wanted a $500 kickback on every loan the broker brought to the firm.

“Who gets hurt here? Home buyers,” said Budde. “They are paying for these kickbacks through hidden interest, added points and other costs tacked on to their loan.”

Budde said mortgage brokers increase the typical half a point they usually charge on a loan or tack on hidden fees to pay for kickbacks to real estate agents. Those extra costs can go as high as $500.

Unsophisticated consumers, especially first-time buyers, aren’t likely to notice hidden fees. Recent immigrants buying homes for the first time are especially vulnerable, he said.

Under a federal law known as RESPA, no one may receive or charge “any fee, kickback or thing of value,” for referring business in mortgage transactions. With a penalty of $10,000 or a year in jail, the law is administered by HUD.