Title company to Wisconsin regulators: Do your job
June 22, 2005
Lawsuit alleges inaction on so-called title insurance kickbacks
By Janis Mara
The owner of a title insurance company is suing the Wisconsin Insurance Commission, accusing the agency of failing to enforce a state ban on real estate kickbacks.
Harvey A. Pollack, who owns Land Title Services in Wauwatosa, Wis., is suing Wisconsin's Commissioner of Insurance, Jorge Gomez, in Dane County Circuit Court.
Pollack claims that many lenders and realty brokers are steering home buyers to title insurance companies that kick back an illegal cut of the fees for the referral and that the commission hasn't taken action to stop the practice.
The action adds a new twist on the existing national title insurance kickback scandal, in which insurance departments in Colorado, California, Hawaii, Florida and a number of other states are investigating title companies for alleged wrongdoing. In this case, the title insurance company is complaining because it says the insurance commission isn't investigating such wrongdoings.
The lawsuit, which doesn't name any companies or estimate how much money consumers may have lost, says title insurance purchasers are charged excessive prices because of referral-fee arrangements prohibited in Wisconsin for more than 30 years.
Milwaukee attorney Mark B. Pollack, who is Harvey Pollack's cousin and is serving as the plaintiffs' attorney in the case, said the Wisconsin Office of the Commissioner of Insurance is obliged to punish title insurance lawbreakers, but has ignored repeated requests to do so from his client and others.
"Wisconsin has a broad prohibition on this. You can't get a referral fee just for directing a customer to a particular title agency. The only way you can get a fee is if you do some work. That's been in our (legal) code since the 1970s," Mark Pollack said.
Fred Nepple, legal counsel for the insurance commission, said, "We haven't seen the suit. We have not been served," adding, "We don't discuss pending litigation as a matter of policy."
The lawsuit doesn't seek damages, but "equitable relief," according to attorney Pollack.
"First and foremost we want an order directing the insurance commission to enforce their own regulations," said Mark Pollack, and "to investigate and see if title agents are complying with the regulations.
"In the alternative, if they're not going to enforce the regulations, we seek an order directing the department to repeal its own regulation," the attorney said.
The lawsuit is based on state regulations including Wisconsin Administrative Code section Ins. 3.32, which details prohibited practices in title insurance.
According to the title insurance company's complaint, the code prohibits "the ability of parties involved in real estate transactions to 'steer' consumers to a particular title insurer, because…title insurers may increase, with little consumer resistance, the premium charged the consumer to fund the compensation paid for 'referrals.'"
A title insurer is prohibited from paying fees to "a producer of title insurance" unless the fee bears a reasonable relation to the services performed, according to the complaint.
The title insurance company's complaint also addresses theissue of affiliated business arrangements, sometimes referred to as ABAs.
Affiliated business arrangements are partnerships between real estate entities such as title insurance companies, mortgage lenders and real estate brokers. The arrangements are legal under the Real Estate Settlement Procedures Act, as long as certain guidelines are followed, such as disclosing the relationships to consumers. RESPA regulates referrals and other practices in the real estate closing process.
"We asked the OCI to investigate affiliations between realty organizations and title insurers," Mark Pollack said.
ABAs have come under scrutiny in the wake of the investigations into title insurance industry referral practices.
Colorado's insurance division is investigating nine real estate title insurers for alleged kickbacks. The investigation set off a national probe of title insurance companies in several other states. In the alleged schemes, title insurers agree to give about half of the premium on title insurance policies to captive reinsurance companies created by the other conspirators. The parent companies of those captives would in turn refer business to the title insurer.
Recently, Toll began investigating ABAs for possible similar misdeeds.
"It's interesting in light of what's going on in California, Colorado, Hawaii, Kansas, as well as this whole issue of title insurance and hidden referral fees being investigated to a significant extent," attorney Pollack said of the lawsuit.
Copyright 2005 Inman News