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Regulators expect significant jump in enforcement of Co. title law violations; new investigations

Colorado insurance regulators expect a “significant” increase in enforcement actions of violations of state law governing illegal kickbacks for referrals in the title industry this year.

The actions are being spurred by an investigation into the title industry by the Division of Insurance expected to wrap up by midyear, said Andy Helm, title insurance analyst and investigator. Helm is leading the investigation.

The probe likely will spark “a couple more offshoot investigations,” Helm said.

“We think there will be more enforcement actions this year than last year,” Helm said. “Now, there’s less of a tolerance against going against procedures” because of a new state law.

Last year, the division took seven enforcement actions against title insurance firms, according to its annual report to the state Legislature. There were 15 in 2008 and four in 2007.

The most common actions are fines, license revocations and shutdowns.

Illegal kickbacks, Helm said, harm consumers and the title firms that do business legally.

The title industry of late has garnered considerable attention from regulators and in the courtroom.

On the federal level, illegal kickbacks are investigated by Housing and Urban Development under the Real Estate Settlement Procedures Act. Violators face a fine of up to $10,000 and a year in jail.

Among actions:

  • Washington State. State officials a few years ago investigated the title industry and illegal referrals. They are now clarifying their law regarding kickbacks to real estate service providers.
  • Pennsylvania. An ongoing investigation is digging into the title industry.

Several other states are at different stages looking into illegal referrals in the title industry.

In Washington State, they were rampant, said Stephanie Marquis, spokeswoman for the state’s office of the insurance commissioner.

“We have a law that says it’s illegal to do a lot of the things that they were doing, things like free tickets, free dinners,” she said. “It was so pervasive that for us to take action against them, it was too time consuming and expensive. So we said we are going to give you some time, but then we will go after you.”

It’s not just a Colorado issue, said Doug Miller, a Minnesota lawyer and executive director for Consumer Advocates in American Real Estate. Miller provided testimony to Congress on illegal kickbacks in the title industry in 2006.

Indeed, to Miller, the problem is rooted in Affiliated Business Agreements, in which real estate service providers form entities to provide what is called “one stop shopping” for homebuyers.

“I think they are all bad for consumers,” Miller said. “Any time you take competition out of the equation, they have no reason to provide great service.”

Not everyone agrees with Miller’s stance.

RESPRO says ABAs provide lower rates and better service to homebuyers. RESPRO, Real Estate Services Providers Council Inc., is a national nonprofit which represents Affiliated Business Agreements.
“RESPRO members would tell you that there is greater accountability,” said Susan Johnson, RESPRO executive director, noting the group supports enforcement of laws banning illegal kickbacks.

ABAs that follow the law, she added, are competitive on rates and service with independent title companies.

“When you look at all illegal referrals there is no more likelihood of them in affiliated businesses,” Johnson said. “Because legally compliant businesses bend their resources to make sure that they are compliant with RESPA and other appropriate state laws, when illegal businesses enter their market, they are as frustrated as anyone.”

For more, please go to the Northern Colorado Business Report.


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