Stewart Title Guaranty Co. has agreed to pay California regulators $1 million to settle allegations that it paid illegal kickbacks to builders, lenders and title agents in exchange for title insurance business.

In its complaint against Stewart Title, the California Department of Insurance had sought $41.6 million in fines and penalties for allegedly paying out $500,000 in illegal rebates to affiliated businesses as part of a captive reinsurance scheme that generated 3,908 title insurance policies.

Captive reinsurance companies created by home builders, lenders and title agents were paid up to 50 percent of the title insurance premiums from the policies, investigators said.

The rebate payments, made between 1998 and 2006, were illegal because reinsurance companies owned by or affiliated with Lennar Homes, Wells Fargo Home Mortgage and other settlement services providers received payments when no real transfer of risk took place, investigators said.

Stewart Title, which the Department of Insurance said controls approximately 10 percent of the California title insurance market, settled the allegations before a scheduled Aug. 27 hearing.

The Department of Insurance issued a press release Tuesday describing the settlement, but was unable to comment on the difference between the fines originally sought and the terms of the settlement by press time.

In a statement, Stewart Title said it “continues to maintain that its reinsurance transactions are legal under both state and federal law and caused no consumer harm.”

The company said the Department of Insurance in June dismissed claims that it violated the federal Real Estate Settlement Procedures Act, or RESPA.

“Stewart believes it has very strong legal and factual defenses to the … allegations and has conducted its business appropriately,” the statement said. “However, as Stewart has not been reinsuring California transactions with alleged captive reinsurance companies for some time, it is in Stewart’s interest to terminate the lengthy and costly scheduled hearing over matters not being practiced or pursued.”

Washington state officials this week announced they are seeking $1.95 million in fines from Stewart Title for allegedly using illegal incentives and inducements to win business from real estate agents, brokers and agencies.

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