First American Title Insurance Co. has agreed to pay a $5 million fine and sever ties to 87 limited partnership title agencies in Florida to settle allegations the company paid kickbacks to builders, bankers, real estate agents and brokers in exchange for business referrals.
Florida regulators and the U.S. Department of Housing and Urban Development accused First American of creating sham affiliated businesses that it owned jointly with companies that could refer home buyers in need of title insurance.
The businesses existed only to funnel payments to the companies providing referrals, the settlement alleged, with First American providing “all regular title services required to effect title insurance.”
“We will not tolerate anyone who violates insurance laws designed to protect the public in order to gain an unfair advantage over their competitors,” Florida Chief Financial Officer Alex Sink said in a statement announcing the settlement.
First American said the joint ventures were in compliance with state and federal regulations when they were formed, and that consumers who purchased title insurance through them were not overcharged.
The jointly owned title agencies, doing business under names including Security First Title Partners, First American Affiliates and Eagle Title, were operating since at least 2003, the settlement said.
“Homeowners who purchased title insurance through these joint venture companies were charged premiums consistent with the valid, filed rates for title insurance in Florida,” First American said in a statement.
The company said the settlement was “in keeping with First American’s previously announced plan to meet with insurance regulators across the nation to … address regulators’ views on changing and emerging standards of good practice.”
First American “is adapting to these changes by agreeing to remediate or close entities, or end its relationship with entities, where the business model was a source of concern for regulators,” the statement said.
First American has also run afoul of regulators in Minnesota, California, New York, Michigan, Washington, Tennessee and Colorado.
In Minnesota, First American recently agreed to pay a $500,000 civil penalty to settle allegations that it created 35 sham businesses that generated referrals from partners including real estate agents and brokers, mortgage originators, building contractors and land developers.
After the Feb. 28 settlement, Minnesota officials began sending enforcement letters to real estate agents who allegedly participated in the sham affiliated business arrangements, requesting that the agents admit to the allegations and pay a fine in the range of $1,000 to $2,000.
In a Dec. 27 settlement with California insurance regulators that was not publicized, First American agreed to pay $10 million to settle allegations that it generated referrals by making cash payments and other inducements to real estate professionals. The inducements allegedly included free software, tickets to rock concerts, chartered fishing trips, riverboat dinner cruises, and trips to racetracks and casinos.
In a 2005 settlement in California, First American and Fidelity National Financial agreed to refund $22.7 million to consumers over an alleged captive reinsurance scheme used to funnel rebates to banks, builders and real estate agents who provided referrals.
In May 2006, First American and Fidelity National Financial each agreed to pay $2 million fines and reduce their rates by 15 percent to settle charges by New York’s attorney general that the companies provided free or discounted title insurance to real estate developers in exchange for referrals.
Also that month, First American was one of four title insurers that agreed to a $27.5 million settlement of a lawsuit alleging they overcharged Michigan homeowners.
In July 2005, First American agreed to pay $680,000 to settle allegations by HUD that its Memphis Title Co. subsidiary made illegal payments through alleged sham affiliated businesses in the Memphis area.
In February 2005, while under investigation by the Colorado Department of Insurance, First American agreed to refund about $24 million to consumers nationwide without admitting liability or wrongdoing.
In Washington state this summer, First American Title was fined $2,500 for alleged inducements that included providing free four-hour classes on the subject of escrow to 37 real estate agents.