Title Firms OK Reform in Deals With Brokers

Title companies, acknowledging long-standing abuses, have agreed to halt nearly all forms of rebates to real estate brokers and agents and to pay the state $840,000 over three years to investigate widespread reports of rampant kickbacks in the industry.

The California Land Title Assn. (CLTA), representing title insurers statewide, agreed last week to halt a routine pattern of unlawful practices that had grown particularly prevalent during the state’s long recession of the early 1990s.

Even today, industry experts say, too many title companies and real estate agents are chasing too few deals, fueling such incentives as under-the-table payoffs, car lease payments and computer equipment purchases to grab business.

Such kickbacks, which title companies have been giving to agents and lenders to secure business, typically add to the closing costs of home buyers, industry sources say.

The agreement, which still must be approved by Insurance Commissioner Chuck Quackenbush, allows title companies to print a realty firm’s fliers that advertise home sales, but agents must pay their share of the costs and title companies must keep separate accounts of the print jobs.

“We feel pretty comfortable that this is a proposal that would lead us forward and standardize and formalize the rules,” said John L. Marconi, chairman of Orange Coast Title Co. in Tustin and head of the CLTA.

The CLTA will pay $280,000 a year to the state Department of Insurance for two investigators, support staff and attorney time. The money will be used solely for investigating industry problems, said Mark Lowder, the state agency’s deputy commissioner for enforcement.

A year ago, Quackenbush had signaled the industry to clean up its way of doing business, and the title companies came to the commissioner’s office several months ago asking for help.

Both title company executives and real estate agents have previously described the various unlawful arrangements as “out of control” and “a mess.” Quackenbush has called the problems “ingrained and widespread.”

The agreement on the printing issue, which had been a gray area between title insurers and real estate agents, angered printers who say they’ve been squeezed out by title firms that handle the printing themselves.

“I think it stinks,” Wesley Martens, who runs Real Estate Photographics in Laguna Niguel, said Monday. “If they think this is one little thing they can keep on doing, this [deal] is foul. They are still violating the law, which they laugh at.”

Quid-pro-quo business arrangements violate both state and federal law. Under federal law, no one may receive or charge “any fee, kickback or thing of value” for referring business in mortgage transactions. Violators face a $10,000 fine or a year in jail, but industry experts say the law is rarely enforced.

The agreement reached between the state and the CLTA is designed to meet the latest requirements of the federal law known as RESPA, the Real Estate Settlement Procedures Act.

RESPA rules, scheduled to take effect nationally on Oct. 7, cover arrangements that title companies long have had with real estate agents and others in efforts to gain more business, said Sally Sciacca, an Alexandria, Va., mortgage finance specialist and RESPA expert.

“The most recent rules allow for the broker to share the costs of printing, as long as the fees and inducements are disclosed so the public knows there’s an arrangement,” Sciacca said. “That’s important.”

The title industry’s agreement with the state should be made final within the next two weeks, Marconi said. Both sides will evaluate the program after three years to determine if it should be continued.

The CLTA will set up an industry committee to review complaints from other real estate-related businesses as well as from consumers. If a complaint can’t be resolved, Marconi said, it will turned over to the state agency.

Lowder emphasized that his agency wasn’t waiting for the industry’s self-policing committee to refer cases. “The department made it real plain that we reserve the right to investigate violations as they occur,” he said.

The agency said that it already is investigating three title companies in California and will widen its investigation if the situation doesn’t improve. The agency wouldn’t release the names of the companies.

In addition, the state Department of Real Estate, which regulates brokers, also is investigating alleged kickbacks.