Garamendi digs deeper into alleged kickbacks
By Dean Calbreath
UNION-TRIBUNE STAFF WRITER
March 12, 2005

Insurance Commissioner John Garamendi is investigating whether companies are taking kickbacks on title insurance policies.

Insurance Commissioner John Garamendi this week subpoenaed some of the largest real estate and mortgage firms operating in California as he stepped up his investigation of alleged kickbacks for homeowners' title insurance.

In the latest round of a multistate investigation of title insurance, Garamendi subpoenaed KB Home of Los Angeles, William Lyon Homes of Newport Beach, Colorado-based Re/Max, United Home Mortgage Corp. of Indiana, Shea Financial Services of Aliso Viejo, and San Francisco's Wells Fargo Home Mortgage.

Garamendi said he is investigating whether the companies are taking kickbacks on the policies they require homeowners to buy to insure the titles to their homes.

"There's an extraordinary scam going on," Garamendi said yesterday during a visit to San Diego.

He added that he had "clear evidence" that home builders and mortgage lenders were using captive reinsurance companies in the low-regulation state of Vermont in order to receive kickbacks on title insurance.

Garamendi said the owners of a typical $400,000 home in San Diego may be paying as much as $2,000 more than they should for title insurance.

The companies Garamendi is targeting say they have done nothing wrong and are unsure why they have been subpoenaed.

"Wells Fargo does not participate in the activities alleged by California's insurance commissioner," Wells Fargo spokeswoman Julia Tunis said. "We believe the title reinsurance agreements we have in place comply with state law."

Kate Mulhearn, spokeswoman at KB Homes, said her company was "committed to full regulatory compliance," adding that "there is no kickback scheme."

But industry analysts say Garamendi has cause to be concerned about title insurance practices.

"The whole issue has to be examined, starting from the time the buyer begins the chain of events leading to the purchase of the policy," said Andy Barile, an insurance industry consultant in Rancho Santa Fe. "You have to look at all the ways in which sophisticated insurance companies can use their tricks to make money."

Garamendi said his investigation of title insurance began nine months ago, when an insurance industry whistle-blower – whom he declined to name – approached his office with information that title insurers were paying indirect kickbacks to home mortgage operations in order to get their business.

Under the alleged scheme, a home builder or mortgage lender directs a home buyer to a particular insurance agency where they can buy their title insurance, which lenders require before making a loan on a home.

Garamendi said the title insurers then reinsure the policies at captive reinsurance companies owned by the home builders or mortgagers. The title insurers allegedly charge the home buyers high fees and pass them on to the reinsurers.

As an example, Garamendi said that the buyer of a $400,000 home in San Diego should be able to buy title insurance for as little as $1,800. But home buyers sometimes pay as much as $3,800, he said, because they follow the directions of the home builders or mortgagers who are looking for kickbacks.

Late last month, Garamendi – working with insurance commissioners in Colorado and Washington state – issued subpoenas to title insurers Fidelity National Title and the LandAmerica group of insurance firms.

First American Title Insurance Co., a third title insurer allegedly involved in the case, has settled charges of kickbacks in Colorado, agreeing to refund about $24 million to consumers without admitting wrongdoing.

Garamendi said he has not settled with First American because he is still investigating the extent of its activities in California. "But they are cooperating with our investigation," he said.

First American, Fidelity National and LandAmerica write about 75 percent of the title insurance policies in the state.

Garamendi said yesterday that more subpoenas may be coming in the investigation. He intends to hold a public hearing on the issue April 4 at the federal building in Los Angeles.

http://www.signonsandiego.com/news/business/20050312-9999-1b12insure.html