Cease & Desist Order by Wa. State Insurance Commission against Title Co.
Tim on 08 6, 2007
Today, the Washington State Insurance Commission, ordered Stewart Title Guaranty Company to stop illegal payment and gifts to agents and Brokers.
“Kreidler’s order demands that Stewart Title Guaranty Company “immediately cease and desist” giving or paying anything in excess of $25, calculated in aggregate over a 12-month period, per person, for placing or causing title insurance business to be given to the title insurer. “I’m appalled that this company clearly has paid no attention to our message that this spending violates the law and won’t be tolerated,” he said. “This is unacceptable behavior and there will be consequences.”
If you actually read the order by the Insurance Commissioner, it discloses the laundry list of violations, naming Brokers that will probably have to do PR damage control.
Let’s compete on an even playing field, without resorting to decades old tactics of buying business. At what point do those “professionals” in the industry disassociate themselves from companies that have a history of operating in this manner? Obviously, many are complicit in the game. Do agents care? Don’t tell me that those in title co. executive or managerial positions are “unaware” of what goes on in their respective offices.
You want to clean up the industry? Here’s a suggestion or two to Commissioner Mike Kriedler and any of his successors down in Olympia:
- Require any service provider involved in a real estate transaction to buy their own advertising and do it directly to the public (ie. no implicit “she/he’s my agent” turf wars by advertising (subsidizing) on an agents ad in a real estate publication).
- RESPA & Insurance commissioners should not just fine, but make it a crime.
- Mandate by law or require any affiliated business relationship to be disclosed at the start of the transaction, not place the disclosure into the ream of papers, hidden in the loan documents a consumer has to digest at signing (darn near impossible), after it is too late for consumers to shop.
I have personally been shown the door on a few occassions because “we only work with x title” company. Ironically, some of those firms have been named in the Order. Now we all know why.
At Legacy Escrow Service, Inc., we work with all title companies and cooperate to assist in the smooth closing of a transaction. Most back office title officers and independant escrow firms work together in partnership even though we compete for the same work. This is not a testimony to not work with a specific title company, but moreso another glaring example of how the business is gained, ethics are absent and how consumers are again hurt by the cozy relationships.
This reminds me of a post I’ve been wanting to write for months, perhaps now is the time: “Escrow, are we just puppets: who is our client?”
About the Author: Tim Kane
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20 Responses to “Cease & Desist Order by Wa. State Insurance Commission against Title Co.”
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Tim…this is only for Snohomish County. King County (and others) have not been reported on yet. The cease and desist in only for “lavishing illegal gifts and incentives on real estate agents, brokers and others to influence business referrals.” They are still operating at a company. However…Stewart Title’s sno-co operation has the potential of being fined approx. 1 mil with their 106 reported violations with fines of up to 10k for each instance.
I think ABA’s have to be eliminated entirely. They exist only to serve people who are willing to exploit their fiduciary relationships. Paying money to fiduciaries to alter their advice is considered commercial bribery in most states – not sure about WA.
We had a very bad experience with Stewart and we dropped them. The person auditing our files on behalf of Stewart secretly became the head of their ABA unit setting up “title companies” for Realtors and Mortgage companies. Not surprisingly, many of their first customers were our customers. In another words, he used our customer list to go steal our customers from us under the guise of doing an audit. Also, no big surprise, Stewart raised their filed rates because now they had a captured audience (my opinion).
What needs to happen is an unfair trade practices lawsuit from one of us and a criminal prosecution for commercial bribery – lets throw one of these idiots in jail.
Tim, was there a fine levied or just another stern lecture of a possible fine?
Jillayne, Fines are to be levied later per the link that Tim has provided on the post. The investigation is not done yet. I’m betting this will be more than a stern lecture.
“The current investigation is not yet complete, but Kreidler said the immediate cease-and-desist order was warranted because of Stewart Title’s blatant disregard for the law.
Results of the investigation and penalties against Stewart Title, as well as any violations found at the five other companies investigated, will be announced when the investigation is complete.”
Here is a link to the actual Cease & Desist Order: http://www.insurance.wa.gov/oicfiles/orders/2007orders/D07-288.pdf
In reading through the findings in the Order, I found it interesting that the Brokers must have believed that the “desk fees” or rental fees of a desk or a file cabinet-top would suffice as being OK.
What I don’t understand is how the mortgage brokers can take out a full page ad and advertise agents listings with contact information going directly to the agent. To me, that would not pass the smell test as being RESPA compliant. Or, are the agents paying for their ad space under that format? I don’t know. Incidently, one of the mortage offices that does this routinely has their office in the very building that houses one of the real estate Brokers in the Cease & Desist Order. Dominoes should be falling. But, I suspect, business as usual: rather than “how can I differentiate myself to excel in the market”, it will be “let’s meet for coffee and figure out how to circumvent this problem. How can we get around this desk fee issue.?”
I apologize for the off-topic question.
Do a large number of closings occur in the week surrounding the first of the month or are closings fairly evenly spread out across the entire month?
The majority of closings occur at month end, but closings occur daily. Many reasons for it.
Aw come on Tim, you don’t really believe that the Brokers thought that would be okay? I’ve had seasoned agents ask me to pay them for the buyers they send me…they even offered to complete the loan application. That agent and I do not work together anymore…he said other lenders did this all the time. It was as if I had 3 eyes when I said, “what about respa?”
Thank you, Tim, for another great post.
Alan,
I would expect the highest volume to be the last week of the month. While lenders often permit closings that fall into the first few days of the next month to be closed “as month end”, that is in place for delays to closings that were supposed to happen by month end.
The reason many offers are written for month end, the 25th to the 31st, is it decreases the amount of cash needed for the interest per day paid at closing.
I’ll write a short post on that in a sec, so you can raise any subsequent questions “on topic”.
[...] Soap that can scratch your back August 7, 2007 Soap from Foliage to go with Tim’s “You scratch my back, I’ll scratch yours” post [...]
I love your post, Tim, and thanks for putting it out there. I’d seen the Seattle Times article about this the other day and hadn’t gotten around to commenting yet. I couldn’t believe the list of desk fees noted in here and can’t even imagine that the broker’s allowed it to begin with!
[...] Aug 11th, 2007 by teamreba An awesome article on Rain City Guide that follows up on the recently noted injunction against Stewart Title is at this link: http://www.raincityguide.com/2007/08/06/cease-desist-order-by-wa-state-insurance-commission-against-title-co/ [...]
If the Insurance Commissioner really wanted to stop this practice they would go after the people receiving these kickbacks as well. If it is a RESPA violation to give them then it is a RESPA violation to accept them.
Scott-
Yes, I completely agree.
Interestingly, there’s a law fim bringing action against a group of title companies claiming that they were overcharged due to these insurance commissioner violations. Here’s the update from the Seattle PI
http://seattlepi.nwsource.com/local/326909_title09.html
Hi scott,
A state insurance commissioner has no authority over a real estate agent’s acceptance of the kickbacks, which is likely a section 8 RESPA violation, a federal law.
That jurisdiction is HUD.
Fine…even better…RESPA is a federal law and violators whether title company (who’s giving it) or Realtor (who’s receiving, and in many cases asking) should be held to the same standard.
Let’s be honest…Brokers and Realtor’s ask for these incentives. They make it abundantly clear that if you (the title company) aren’t willing to give it to them then they will take their business elsewhere. Some will go as far as to forbid a title company that won’t participate from even stepping in the door of their office.
If the Insurance Commissioner doesn’t have the authority to enforce it then someone does and the commissioner, I’m sure, has their ear.
I’m not going to hold my breath that anything of substance will be done against the offending real estate companies. The Washington Association of Realtors (WAR), like many other states is a powerful political force.
Net result – Consumer Gets Screwed!!!
Hey Tim, did you see this? From this afternoon’s Seattle Times. It looks like the Insurance Commissioner is going to go forward with a 1.95 million dollar fine against Stewart of Snohomish County.
http://seattletimes.nwsource.com/html/businesstechnology/2003855843_webstewart27.html
And if the irs was to look at the deductions these companies are taking for the costs of the referrals they would all be disallowed. That is because while the company claims they paid them in the course of their business, irs code section 162(c)(2) says they are not deductible and therefore a big tax deduction is lost. Informants do get a percentage.
(2) Other illegal payments
No deduction shall be allowed for any payment made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer.