First a warning, then a widespread investigation, and now a fine.

You get the feeling that Mike Kreidler knows who is providing some of the wonderful food, flowers and giveaways at Realtor open houses, and he would like it stopped.

Kreidler, the Washington state insurance commissioner, recently announced that his office had fined Ticor Title Insurance Co. and First American Title a total of $35,000 for violating regulations that limit the use of incentives and inducements to obtain title insurance business.

Washington state law limits the use of incentives and inducements to $25 per person per year. The Real Estate Settlement and Procedures Act, or RESPA, also limits the amount third-party providers can spend on individual agents to $25 a year. That doesn’t even cover the cost of a decent seat at a Mariner game, yet the amount was set to show only a token appreciation of thanks for business received. Needless to say, the figure is regularly disregarded even though some officials in the housing industry have sought clarity on the rule in an attempt to see if $25 really means $25 a year.

Last year, investigators found widespread and illegal spending among 10 Puget Sound title companies, but no fines were levied at that time even though many of the companies exceeded the $25 limit by thousands of dollars on a regular basis. Instead, the commissioner’s office decided on a blanket warning — that apparently fell on deaf ears.

Kreidler’s office fined Ticor for the purchase of holiday gifts, dinners and floral arrangements for real estate agents and lenders in three instances, which exceeded $25 per person and constituted violations of regulations pertaining to rebates and illegal inducements. The agency fined the company $25,000 with $20,000 suspended on the condition of no further violations and the company’s adherence to a compliance plan.

According to the insurance commissioner’s office, Ticor was fined for the following:

  • On Dec. 18, 2006, it purchased four holiday gifts for real estate agents and lenders, which cost $29 each, and one holiday gift for a Realtor that cost $31.95.

  • On Dec. 28, 2006, it purchased dinner for three individuals, two of whom were real estate agents or lenders, which cost $216.16.

  • On Jan. 10, 2007, it purchased a floral arrangement for a real estate agent that cost $58.75.

The findings were small potatoes compared to some of the referral-abuse announcements over the past several years. For example, three years ago, California-based Southland Title Corp. and its subsidiaries, Southland Title of Orange County and Southland Title of San Diego, were alleged to have spent at least $174,000 on food, beverages and entertainment plus $62,000 on gifts and gift certificates and $218,000 more on “business support services.”

The amazing discovery was that the same company had been fined $1.5 million two years earlier for similar practices. That’s a lot of free lunches — and it gives you an idea of what one company felt it had to do to stay in the client referral game.

Real estate is a tough, competitive and highly lucrative business. Brokers say third-party providers are constantly showering them with goodies while the providers contend that they will quickly be dropped if they don’t provide the gifts.

Great stories are common. A few years ago a title insurance company offered to furnish a real estate broker’s office if all of the agents in that office wrote in the title insurance company’s name in the appropriate spot in the earnest-money agreement. Another company offered a broker the use of billboards in public places for carrying the company’s name atop preprinted earnest-money agreements. A third company offered all-expenses-paid fishing trips.

How do you separate kickbacks from company advertising? For example, let’s say the impressive luncheon buffet, paid for by a title company, is brought to a Sunday open house by a real estate agent. Is that tray a gift to the agent for past and future business or an advertisement to induce potential buyers to use the title company when buying their next home?

The Washington state insurance commissioner believes title companies should at least know the tray is worth more than $25.

To get even more valuable advice from Tom, visit his Second Home Center.

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