Kickbacks: A Marketing Approach

Stewart Title Guaranty Co. has agreed to settle charges levied by the California Insurance Department stemming from illegal kickbacks at a cost of $1 million. California alleged that Stewart funneled $500,000, or as much as 50 percent of its premiums, through shell companies to builders and lenders in exchange for referrals from 1998 to 2006. The insurer passed on the cost of the payments to 3,908 homeowners in higher home-closing expenses. According to the insurance department, Stewart did not admit any wrongdoing.

But, in a never ending series of investigations, this is not not the end for Stewart. Mike Kreidler, the Insurance Commission in Washington, has proposed $1.95 million in fines for similar behavior. During a review of Stewart Title of Snohomish County, Inc.'s financial statements for a four month period, the department found more than 100 violations of the state's $25 limit on gifts. Allegedly, the company illegally paid for things like desk fees, advertising, golf tournament sponsorships and other gifts.

Stewart isn't the only company with problems - the top insurers, controlling 90% of the market, have paid a total of $78 million in settlements in the past two and half years! Whether they have admitted any wrongdoing or not, it must be worth it because the practices continue.

"There's more illegal activity now," said U.S. Housing and Urban Development Secretary Alphonso Jackson. "We believe it's at an all-time level."

Source of Title Blog ::

Here is an interesting excerpt from an article appearing MercuryNews.com, Title Firm Settles Over Kickbacks:

The questionable payments typically have been made in cash, meals, trips and sports tickets, regulators said. In the state of Washington, the title-insurance industry "is rife with practices gone haywire," including $1,500 Super Bowl parties, $900 dinners, and $13,000 convention parties for Realtors and lenders, an October report by the state insurance commissioner said.

"What's one man's kickback is another man's marketing approach," said Jim Maher, executive vice president of the American Land Title Association, which represents the title insurance industry. "The overwhelming percentage of transactions are done entirely above board."

Maher faulted federal and state laws for being "absolutely vague." Pressure for questionable payments often originates with Realtors and brokers rather than title insurers. "It's tough to deal with someone who has their hand held out," he said.

Really?? Is it that hard to distinguish illegal kickbacks from legitimate marketing?? After $78 million in settlements, could it still be that unclear??

Here is a little advice, free of charge. If you can't understand the letter of the law, follow the spirit of the law. Don't provide anyone with anything worth more than $25 if they are in a position to refer business to you and you should be pretty safe. It seems pretty obvious to me that the majority of these transactions were entered into to induce the recipient to refer business to a particular company - that seems to be what the spirit of law is attempting to prohibit.

And, if someone has their hand held out - it should be pretty obvious that filling it is a violation of the spirit of the law. If you can recognize when someone is asking for a handout you should be sharp enough to realize that something is amiss.

If $78 million in settlements hasn't put an end to this shady practice, perhaps the state regulators need to delve further into their arsenal and consider suspending licenses. Apparently buying business works. Its so profitable that the companies are undeterred by proposed fines.

If the laws are as vague as ALTA would have us believe, that its just not possible to comply with them, then why is the industry not challenging them in court? Some of that $78 million would certainly be better spent getting clarification from a judge... unless the industry would rather not have the laws clarified. Maybe its worth it to settle the charges and continue to buy 90% of the business.

Robert A. Franco
SOURCE OF TITLE
rfranco@sourceoftitle.com

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Categories: Marketing, Title Industry

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	Fines in this area are just the cos...
	Fines in this area are just the cost of doing business. There is no set of regulations or enforcement mechanism that will ever be able to get referral fees and kickbacks out of the business short of instituting the death penalty. We would probably all be a lot better by going back to the pre-RESPA days when the referral fee was on the HUD-1. At least that way the consumer will have some clear indication of what is going on. This will continue to be problem until we can get consumers to care about getting ripped off, which means getting them to pay more attention to the title insurance aspect of each sale or refinance they do. How to do that is anybody's guess. The unfortunate outcome of more of these stories like the one involving Stewart is either more regulation that punishes honest companies or the complete shutdown or takeover of our industry state by state.
	by David Jenkins \| 2007/08/29 \| log in or register to post a reply

Source of Title Blog

Robert A. Franco The focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco
SOURCE OF TITLE

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