Going on four years, Erin Toll arguably has been the most feared regulator in Colorado. Her career was launched when, while working as the state’s deputy insurance commissioner, she exposed a massive title-insurance kickback scheme. Shortly thereafter, she was on a national stage testifying before Congress to press for changes in that industry. It appeared her bosses couldn’t be happier.

The ambitious New York native with an affinity for the spotlight was tapped in late 2006 to lead Colorado’s Real Estate Division. With that tough reputation, Toll was seen as the solution to a mortgage industry rife with abuse.

Colorado’s foreclosure rate at the time was the worst in the nation, and unscrupulous mortgage brokers were preying on struggling homeowners.

It was a good time to be Toll.

Lawmakers backed her up with additional authority, and she increased disciplinary actions and levied record fines against an industry blamed for the worst economic collapse since the Great Depression.

But Toll’s independence and aggressiveness made her enemies — powerful ones in both business and politics.

Then, early this year, Toll, 49, made a mistake.

She tangled with a state senator — Ted Harvey, a Highlands Ranch Republican — bent on turning back her growing authority as director of the state Real Estate Division.

After a confrontation with Harvey at a March 2 committee hearing, Toll said Harvey and the company he worked for were under investigation by her office.

It wasn’t true.

Within days, Toll was suspended by her boss at the state Department of Regulatory Agencies with no explanation. She has been barred from discussing the situation and retained Evergreen employment attorney William Finger.

Now, the take-no-prisoners character trait that made Toll the state’s most visible regulator could prove to be her undoing.

Reliance on going public

Toll, a 1986 graduate of the University of Virginia School of Law, is by all accounts a standout student of regulatory law.

After a stint as a lawyer at the Division of Insurance, she was brought on as the division’s compliance director.

“She’s a very qualified . . . lawyer,” said William Kirven III, the insurance commissioner who hired Toll.

It was there Toll began to make a name for herself as a stern regulator, unkind to violators and unsympathetic to even minor infractions.

That often didn’t sit well with the industry she regulated. In part, it came from Toll’s assertiveness for compliance, but it also came from a quick reliance on going public with her investigations.

“There was always blowback from the industry,” Kirven said. “We thought she was simply too strong and too public.”

Really at issue was an industry unaccustomed to toeing the line, Toll’s attorney said.

“There were serious problems going on that needed to be taken care of,” Finger said. “Her reputation was she was dedicated to serving the public interest . . ., not her own.”

Then-Insurance Commissioner Doug Dean made her deputy commissioner. Like others who hired her, Dean refuses to discuss Toll.

Toll’s big break came quickly in 2005: an investigation that uncovered a complex kickback scheme between title companies and homebuilders, lenders and real estate agents.

Huge fines that changed industry practice resulted, but not before Toll ruffled a few influential feathers. One company even tried to have her bounced from the investigation.

At a news conference announcing the fines, Toll was front and center — an oft-repeated practice. Just behind her: Attorney General John Suthers, Dean and then-Gov. Bill Owens.

“I’m a public servant,” Toll said at the time. “And I’ll take a promotion if anyone wants to offer one.”

Questions, concerns surface

Success was starting to pay dividends, and in April 2006 Toll was asked to testify before a congressional subcommittee about the title investigation.

She testified as a member of the National Association of Insurance Commissioners, but her bosses weren’t pleased. They say Toll ignored an internal policy requiring executive branch employees to get permission to testify before Congress, said Mike Beasley, then Owens’ legislative liaison.

“It was stunning to see that lack of respect for an established policy,” said Beasley, now a contract lobbyist. “That was one of the most blatant violations of policy and how we governed ourselves.”

Toll’s attorney disputed the assertion, saying “those required to be advised” were told.

Back home, Toll frequently flouted directives to stay silent on legislation or amendments proposed in the Colorado legislature, causing discord between Owens’ office and leading lawmakers, Beasley said.

Despite concerns, Toll was hired to run the Division of Real Estate in late 2006, a position for which she had previously been passed over because some thought her to be a maverick.

Division policy about media access was clear, said former Real Estate Division director Debbie Campagnolla, whom Toll replaced: “Pending investigations were confidential, either until they were dismissed or a resolution was reached.”

A pair of government insiders has said Bob Lee, a real estate industry professional who was Owens’ chief of staff, contacted Department of Regulatory Agencies then-director Tambor Williams to ask whether hiring Toll “was a wise idea.”

Wrinkles in rulemaking

The division, according to Toll, was in a shambles when she arrived.

“I inherited this horrendous backlog” of cases, she told the South Metro Denver Realtor Association in November 2008.

It didn’t take long for the real estate industry to see Toll’s focus as she reorganized division resources to focus nearly exclusively on code enforcement.

That manifested in October 2006 when Toll recommended a record $80,000 in fines and license revocations against two appraisers before the Board of Real Estate Appraisers. The previous high had been $4,500.

Still, her aggressiveness was easy to justify. Colorado had the nation’s highest foreclosure rate for seven months, and the real estate industry was about to collapse.

Some complained that Toll’s exuberance cost them a career, at times on a mere technicality.

Real estate broker and appraiser Robert Coyne — then known as Robert Bubeck — four years ago pleaded guilty to a misdemeanor sex charge in El Paso County. The case would be dismissed and his record cleared if he served two years of probation and stayed out of trouble. He did.

Before the dismissal, the Real Estate Commission fined him $1,000 for not reporting his guilty plea, and case details were posted on its website.

Then, nearly a year after the case was dismissed in August 2008, the Board of Real Estate Appraisers sanctioned Coyne for not reporting the case to them — even though technically it no longer existed.

Legislators and the real estate industry cried of the need to license mortgage brokers — the ones who prepare applications and shop them around to banks and other money sources — in Colorado, one of two states where they weren’t.

The state in 2006 passed the Mortgage Brokers Registration Act that required registration — fingerprinting, background checks and a bond, but no education requirement or exam.

Crossing the line, according to some, wasn’t pre-empted by registration. That would change in 2007 as lawmakers rushed to curb mortgage fraud.

What ultimately arrived was the cheapest, quickest regulatory system possible, one where the director of the division carried full authority over brokers.

“We support giving broader rulemaking authority to the director,” Colorado Mortgage Brokers Association then-president Bill Kidwell told legislators during bill hearings. Later, Kidwell said he preferred a regulator shape industry guidelines rather than lawmakers.

The division oversaw the licenses of real estate brokers and appraisers, but each was regulated by a board that meted discipline at the recommendation of Toll and her staff.

Mortgage brokers would be different. Toll would get complete control.

Nonetheless, Toll sought outside input as she crafted the guidelines, her supporters say.

“She could have just made the rules because she was told to do so,” said Anita Padilla, president and chief executive of mortgage company Mega-Star Financial and a task-force member. “She got opinions from the public, attorneys and loan officers.”

Appetite for winning

Toll isn’t all just thunder and lightning. There’s a softer side to her that, some say, works to her advantage.

An avid snowboarder who was once a competitive mountain biker, Toll is a fashion-forward dresser — she adores Jimmy Choos — and is drawn to sushi and sake, though she wouldn’t refuse the occasional cheeseburger and fries.

Like many Coloradans, Toll is a fitness buff — she once taught a spinning class — and turns to yoga to keep herself grounded.

Married twice — each a lawyer with real estate industry clients — she is known as a proud mother of three who carefully shields her family’s privacy. Conversation comes naturally to her, and she has an easy- going delivery that relaxes anyone engaging her.

But close associates say the shiny veneer hides sharp teeth and a voracious appetite for winning. Defeating the enemy — wrongdoers who harm consumers — is, by her admission, her sole focus.

Before Toll would dig into the mortgage industry, she set into conservation easements, where her subpoena power — another bone of contention with the industry — helped uncover deals where donated lands were appraised for more than their actual value and landowners benefited from generous tax credits.

“There were dozens of them, and we were pretty well kept in the dark about what was being investigated and why,” Denver lawyer Rod Atherton said, recalling the first subpoenas into conservation easements in November 2007.

The inquiry paid dividends: The Board of Appraisers censured and fined several appraisers, a conservation easement task force was created, and the IRS and a state grand jury did additional investigations.

The number of complaints — and their discipline — began to bear out Toll’s work. In 2007, her first full year as director of the Real Estate Division, there were 207 complaints filed against appraisers — 114 of them resulted in some form of punishment.

The year before, 184 complaints resulted in just 18 disciplinary actions, records show.

The number of licensed appraisers also fell — from a high of 5,598 in February 2006 to 3,545 today — in part because of the economy and partly due to increased regulatory enforcement.

Since 2007, when mortgage broker registration began in Colorado, the number of complaints has leaped 176 percent — from 353 the first year to 974 last year.

And in that stretch — from 2007 to 2009 — the division disciplined a growing percentage of brokers annually. What started as a 1-in-7 ratio of disciplines to complaints has risen to 1-in-3, according to the division’s website.

Toll and her team were getting accolades for reining in Colorado’s chaotic mortgage world, which at one point had the state on an FBI watch list for mortgage fraud.

Not everyone was cheering. Re/Max International in July 2008 sued the division and Toll after it became an investigative target.

Re/Max’s gripe: Toll went to the media about her investigation before the firm received its first subpoena. The lawsuit was settled in September 2008.

“I thought she enjoyed the power too much,” said Kirven, the former insurance commissioner. “I think Erin likes the attention, but that doesn’t make her a bad regulator.”

Oversight in high gear

By the time 2009 rolled around, Toll and her investigators were cranking on the doings of mortgage brokers just as the entire real estate industry and the American economy were experiencing the worst nose- dive since the Great Depression.

The division uncovered a $45 million mortgage-fraud scheme where two brokers peddled more than 100 deals with inflated prices and fat commissions. Nearly all of the houses ended up in foreclosure, prompting the FBI and IRS to dig in as well.

By September 2009, Toll had inactivated the licenses of more than half of Colorado’s mortgage brokers for not complying with new education and testing requirements.

The message was crystal clear: Toll isn’t even fooling around with the small stuff.

By late 2009, the division’s push to find wrongdoing was gaining more attention as targets fought back.

None has won.

In one case, two mortgage brokers sued Toll for subpoenaing all their bank records. A district judge upheld the tactic but said private bank records were off-limits.

In another, mortgage broker Leo Schifrin for two years battled in state and federal courts to get Toll to issue his license. Even with orders from an administrative law judge — there have been two separate opinions on his case — saying Toll should issue the license, Schifrin’s been denied.

The crux: a long-ago low-level felony theft conviction while a University of Colorado at Boulder student.

“I’m a 40-year-old man with a family of two kids,” Schifrin said. “The fact is the department does a really good job. . . . But in my case they’re dead wrong.”

“Agency out of control”

Appraisal management companies, firms that are a buffer between lenders and the appraisers they hire to evaluate the property sales they are funding, became Toll’s focus starting in November 2009.

“We’re getting many complaints from appraisers who say they’re getting blacklisted for not doing what the appraisal management companies say they should do,” Toll told the South Metro Denver Realtor Association. “I feel like they’re almost encouraging the breaking of the law.”

On Feb. 2, Senate Bill 77 came up for a hearing before the Senate Committee on Business, Labor and Technology. The measure, brought by Sen. Rollie Heath, initially looked to place appraisal management companies under the watchful eye of the division’s existing Board of Appraisers.

Toll told the committee members — including Sen. Harvey — that regulating appraisal management companies would bring the state into line with federal guidelines. Harvey, however, noted those guidelines weren’t yet firm.

Toll bristled at the pushback — the first she’d encountered at the Capitol — and she pressed for its approval.

Instead, legislators set SB 77 aside for another day.

The brief exchange between Harvey and Toll occurred just a day before the senator — himself a mortgage broker — met with a fellow lawmaker and three Division of Real Estate representatives to discuss mortgage broker regulation.

At that meeting, Harvey and House Minority Leader Mike May suggested mortgage brokers be governed by a new oversight board — and not Toll — after a constituent complained about overzealous division investigators, May said.

The reason for the desired change: “They get the death penalty before they’re convicted,” May said of the division’s investigative targets. “It was McCarthyism. They were an agency out of control.”

May said the meeting went poorly, and any consideration of moving away from Toll’s unilateral oversight to a board was rejected by the division’s staffers and then Barbara Kelley, director of the Department of Regulatory Agencies, which oversees the Division of Real Estate.

Kelley isn’t talking. Her spokesman has said the department can’t discuss personnel matters.

Toll would later tell reporters that her staff felt threatened by Harvey, who said he apologized for his tone.

SB 77 came up for rehearing March 2. It didn’t help that the bill had a measurably different look to it.

If passed, appraisal management companies were no longer to be regulated by the appraisers’ board. They would now be just like the mortgage brokers — under the complete and sole control of Erin Toll.

It’s unclear who made the amendment, but Harvey bored in on the change.

“When you have a director scenario . . . like you do with the mortgage industry . . . you have a dictatorial process where whatever the director says goes,” Harvey said.

Toll suggested Harvey’s complaints might be “something personal with me in that, you know, I’m a robust regulator.”

She even noted she had the support of the industry the bill proposed to regulate. Several industry groups testified in favor of the measure a month earlier — but in its original form.

Sen. Shawn Mitchell piped up: “I’ve heard that there are industries that agree to bills with you because they’re afraid of you and they’re afraid of you targeting them, and they would rather be in your good graces.”

Toll stammered. The issue, she said, was that “no one is enforcing (the regulations) we have. That’s what I do. I enforce what we have. And some people are not used to that.”

Harvey would later say it was Toll’s boldness in redrafting legislation and asking lawmakers to pass it without full review that set the committee at odds with her.

SB 77 was killed eight days after Harvey asked that it be tabled.

Authority unravels

The same day as the bill was tabled, Toll testified before the same committee about changes she wanted to mortgage broker regulations.

Though the premise of Senate Bill 1141 — ensuring mortgage companies are registered and use an identifying number in their paperwork — met with little concern, a tiny amendment created a conflagration that set in motion Toll’s eventual downfall.

Whenever the state is mandated to regulate an industry, an automatic evaluation process is used to measure its effectiveness, usually every five years.

For mortgage broker oversight, which began in 2006, the review was set for 2011. In this new version, the review had been pushed to 2014.

It was needed because, Toll said, legislative changes adopted over the years needed additional time to take effect.

Harvey and others on the committee pounced on the amendment and stripped it from the bill. A few days later, they added provisions that put oversight of mortgage brokers with a board, not Toll. The measure on Tuesday received final legislative approval.

The exchange was enough to cause Toll to tell reporters that Harvey left her feeling verbally “assaulted.”

“He was vicious,” Toll told The Denver Post at the time.

That’s when Toll told committee chairwoman Sen. Lois Tochtrop and later reporters that Harvey and his employer, American Home Funding, had been under investigation since November for false advertising.

The company’s advertising caught the attention of division investigators that month, and Toll had corresponded with her investigators about the company, but a formal investigation had not been launched when Toll made her revelation.

It wasn’t until the next day — March 3 — that the investigative file on American Home Funding and Derrick Strauss, its owner, was opened.

An internal investigation into Toll’s conduct has focused on the date the formal investigation was launched and whether it was retaliatory.

Toll’s attorney has suggested that a subordinate erred by not opening the investigation when earlier instructed by Toll to do so.

However, in an e-mail to a colleague after her confrontation March 2 with Harvey, and before the investigation was opened, Toll acknowledged that her “ego is a bit bruised” but it is “nothing a little yoga and responsive action to an attack won’t mend.”

Toll remains under suspension pending the outcome of the investigation.

David Migoya: 303-954-1506 or dmigoya@denverpost.com
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com

Timelime

May 2000: Erin Toll becomes director of compliance for the state Division of Insurance.

July 2001: Toll leads the charge against insurers blocking coverage because of suicide attempts.

January 2005: Toll becomes deputy director of insurance. Toll announces consumers need only pay once for underinsured/uninsured motorist coverage.

February 2005: Investigation of title insurance kickbacks.

March 2005: Toll announces title company settles for $24 million to consumers in five states.

April 2006: LandAmerica title tries to have Toll ousted from investigation into kickbacks. State officials refuse. Toll testifies before Congress regarding title insurance scams.

May 2006: Mortgage brokers required to undergo background checks.

September 2006: Toll named director of Division of Real Estate.

October 2006: Toll says she’ll attack appraisal fraud. Board of Real Estate Appraisers issues fines of $80,000 against two appraisers.

February 2007: Real Estate Commission requires sellers to disclose whether homes had meth labs.

March 2007: More than 500 complaints flood the division over home sales. Toll issues subpoenas to get access to Realtor multiple listing service data.

August 2007: Mortgage brokers must be licensed, and Toll is in charge of all discipline.

September 2007: Toll keeps lenders from pulling out of the state because of new laws.

November 2007: Toll launches probe into conservation easement abuses.

December 2007: Appraiser has license stripped to lowest level and is fined $10,000 in easement probe. Bill crafted to stem abuses of easements.

April 2008: Re/Max International sues title company for not honoring referral agreement. Toll issues subpoenas investigating the arrangement.

June 2008: Grand jury empaneled over conservation easement issues. IRS joins inquiry.

July 2008: Feds get involved in Real Estate Settlement Procedures Act inquiry because Toll lacks jurisdiction over banks and mortgage lenders.

September 2008: Colorado drops from top 10 states with mortgage fraud for first time in five years.

October 2008: Division uncovers $45 million mortgage fraud.

September 2009: Licenses for half the state’s mortgage brokers are inactivated. Two brokers sue Toll for violating privacy rights by subpoenaing private bank records. Judge sides with division but not for private records.

November 2009: First flier from American Home Funding appears; two division employees get them.

January: Colorado Rep. Mike May and Sen. Ted Harvey request meeting to discuss mortgage broker regulations.

February: May and Harvey tell DORA they want board to have oversight of brokers, not just Toll. DORA director Barbara Kelley rejects the idea.

March 2: Bill to regulate appraisal management companies switches from board to director oversight. Harvey kills measure. Second bill regarding mortgage brokers pushes back review time. Toll says Harvey and American Home Funding are under investigation.

March 3: Investigative file on American Home Funding officially opened.

March 12: New division guidelines about investigations are adopted.

March 15: Kelley learns of post-dated file on American Home Funding.

March 16: Toll suspended with pay pending internal inquiry.