A California real estate brokerage has been accused by the state of accepting kickbacks in exchange for referring home buyers and sellers to title insurance companies.
R.J. Young Co., a Westlake Village, Calif.-based real estate broker, is accused of accepting “at least $15,996.91” in 2004 for referrals of its sellers and buyers to title companies owned by Fidelity National Financial.
In an accusation, which is an administrative document, the California Department of Real Estate alleges that the seven-agent brokerage also committed “fraud or dishonest dealing” by failing to disclose to sellers that the brokerage would be paid by title insurance companies for sending them there.
This is the first time the state has targeted a real estate brokerage in its ongoing investigation of alleged title insurance kickbacks, which are prohibited under the Real Estate Settlement Procedures Act and some state laws.
In November, two of the nation’s largest title insurers agreed to pay a total of $22.7 million to consumers in final settlement agreements with California Insurance Commissioner John Garamendi over alleged rebate activities.
Fidelity National Financial and First American Title Insurance Co. were accused of funneling illegal rebates to banks, builders and real estate agents who allegedly steered business back to them. The title companies settled without admitting wrongdoing.
Investigations of these alleged practices have been in the spotlight nationwide since 2005, with probes of major title insurance companies in other states including Colorado, Washington and Hawaii.
In the accusation filed Feb. 3, California’s Department of Real Estate, represented by Deputy Real Estate Commissioner Maria Suarez, asks that a hearing be conducted, which could lead to the suspension or revocation of the license of Joan Ruth Young, the broker of record for R.J. Young Co.
Young did not respond to a message asking for comment, nor did a spokesman for Fidelity National.
The matter will proceed to a hearing by a state administrative law judge unless the parties settle, according to Tom Pool, a spokesman for the Department of Real Estate. Currently, Young has 15 days to file a response, “though we very rarely will default anybody if they come in later. They are entitled to due process and we want to make sure they get due process,” Pool said.
Young does not face a fine in the matter, Pool said. “We do not have authority to fine.”
The brokerage also does business as Joan Young Co. Realtors, Young Realtors and other names, according to the legal papers, and has been helmed by Young as broker-officer since 1987.
The accusation alleges that R.J. Young had a reinsurance participation agreement with Fidelity in which the brokerage received 15 percent of a net title reinsurance premium, based on customer referrals to title insurance companies.
In other words, the various Fidelity subsidiaries would give part of the insurance premium to a sham title reinsurance company established by the parent company, the accusation alleged. The parent company then allegedly gave 15 percent of that reinsurance premium to R.J. Young Co.
“DOI (Department of Insurance) determined that the reinsurance agreements were not legitimate reinsurance agreements, but were a scheme under which title insurers were paying real estate brokers illegal rebates – in the form of ‘premiums’ on fictitious reinsurance paid to captive reinsurers – in exchange for the brokers channeling business to the title companies,” the accusation said.
These allegations are consistent with those involved in the nationwide title insurance scandal that began early last year. California Insurance Commissioner Garamendi worked with Colorado and Washington state insurance regulators to probe a series of alleged phony reinsurance contracts between title companies and subsidiaries of real estate agents, developers and lenders.
Under these alleged elaborate schemes, the title insurers agreed 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.
The arrangements were designed to kick back a large share of the title-insurance premium in exchange for the referral of the customer to the title company, a violation of the law, and a practice that harms consumers by potentially forcing up title insurance rates, according to Garamendi.
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