The state of Colorado is cracking down on title insurance agencies, passing legislation with heavier penalties for wrongdoing, setting new capitalization standards for agencies and toughening up the agents’ licensing exam.

“Probably the most important part of H.B. 1141 is that it allows the Insurance Commission to demand restitution to aggrieved parties in the amount of kickbacks,” said Erin Toll, Colorado’s deputy insurance commissioner, referring to the new legislation that goes into effect July 1.

The title insurance industry came under an intense spotlight in 2005, largely because of Toll’s efforts. Colorado’s Insurance Division has investigated nine Colorado title insurers for alleged kickback schemes said to result in overcharges to consumers.

Toll’s probe focused on affiliated business arrangements, or ABAs, that allegedly existed only to secretly funnel kickbacks between title insurance agencies, builders and lenders. Affiliated business partnerships in real estate are legal, but in some instances have been accused of being used for improper purposes.

If ABAs are found to be operating in violation of the act, Colorado’s H.B. 1141 will allow the state’s insurance commissioner to assess monetary penalties in “the amount of remuneration improperly paid and shall be paid to the person aggrieved by the violation or apportioned among multiple aggrieved parties,” according to the act.

“The other big thing is it requires full disclosure (to the commission) of all full affiliated business arrangements, including that the title agent disclose the name of the underwriter. This is important because we will look to the underwriter and require that they monitor their agents’ activities,” Toll said.

Also, the act requires that escrow companies be licensed.

“We are starting to get a lot of complaints about unlicensed escrow handlers,” Toll said.

Aside from the legislation, Toll said, the commission has also beefed up the one-time exam title insurance agents must pass in order to get their licenses.

“The other exam was 40 questions and it was 10 years old, so apparently all the answers were floating around in the industry. Now there are 75 questions, there is a state-specific section and a general section,” Toll said.

“The third thing is that we will be amending our regulation for capitalization,” Toll said. “Right now we require title agencies to show they have $10,000 in the bank to get a license. So they set up an agency with the $10,000 and then use the $10,000 to set up one affiliated business after another.”

An agency that doesn’t have its own capital is more likely to be a sham agency, existing for purposes other than doing business.

Tim Killcoyne, head of Denver’s Town and Country Title, as well as Colorado’s chapter of the Real Estate Service Providers Council, was one of the industry leaders consulted when the bill was crafted. He said he feels positive about the legislation.

“The main thing the act does is to help the Division of Insurance and the Division of Real Estate to work together,” the title insurance company president said.

“For example, a couple of years ago, the Insurance Division went after a title insurance company, Title America, that sent four if its top producing Realtor broker agents on an all-expense trip to a spa via the company jet to say ‘thank you for the business,'” Killcoyne said. “That’s a kickback in a classic form.”

According to Killcoyne, “it took a year for the information to percolate over to the Division of Real Estate when they looked at the four brokers who went on the junket.”

Killcoyne feels that H.B. 1141 “makes sure if one side is giving a kickback or bribe, the other side that’s taking it will also be looked at. This will help much more to clean up the industry.”

Debbie Campagnola, director of the Division of Real Estate, said, “What this new law does is give us the ability to share information during an investigation because our statute says complaints of record and results of investigations are closed to anybody until the case is dismissed or settled.”

The director said, “That’s what happened with Title America. They (the Insurance Division) got the case long before we did and we didn’t know about it until after their settlement with Title American probably because of their confidentiality statute.”

Now, Campagnola said, under the new law, the divisions are authorized to share information. “It puts us in sync with these two types of investigations. Everyone’s working on the same definitions, procedures, statutory authority.”

Like Killcoyne, Denver real estate agent Larry Hotz, who has sold homes in the area for 26 years, felt positive about the legislation.

“Anything that helps enforcement of anti-kickback regulations is a good thing,” Hotz said. He added that he had not read the bill and could not comment on any of its specifics. “But to the extent it may provide for better enforcement of regulations against illegal kickback schemes, it is in the consumers’ interest because ultimately they contributed to the cost structure of title insurance, plus the fact that they were unethical.”


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