California: 'Zero tolerance' for inducements

Regulators back off from limits on joint ventures

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California regulators have suspended a title insurance marketing representative and fined her employer $21,600 in the first enforcement of a new state law with "zero tolerance" for business inducements to Realtors and lenders.

The marketing representative, Lizett Alcaraz, and her employer, Commerce Title Co., were accused of providing marketing lead lists to Realtors and lenders in Riverside County as an inducement for them to refer business to Commerce Title.

The lists allegedly included notice of default lists, reverse mortgage lead lists, lists of adjustable loans coming due with phone numbers of borrowers, REO lead lists, and farm lead lists with mortgage information on real estate properties.

The California Department of Insurance said Alcaraz agreed to pay $1,570 and to refrain from marketing and selling title insurance for 30 days. Commerce Title, which is licensed in 37 California counties, agreed to pay $21,600 in penalties and $2,500 in fees and costs.

It was the first enforcement of a new law, SB 133, which took effect Jan. 1 and makes title marketing representatives as well as title companies liable for violations of anti-rebate laws.

SB 133 established a zero-tolerance policy prohibiting title insurance companies or their employees from providing inducements to Realtors and lenders, including any expenditures for food, beverages and entertainment.

The law requires that title marketing representatives hold a valid certificate of registration. So far, the Department of Insurance said it has issued 1,913 certificates.

SB 133 was endorsed by an industry group, the California Land Title Association, as regulators were contemplating a potentially more drastic step — strict enforcement of an existing law that prohibits title insurers from obtaining more than 50 percent of their business from joint ventures with real estate brokers and lenders.

Such joint ventures, also known as affiliated business arrangements (AfBAs) or controlled businesses, are a legal way for title insurers to split profits with Realtors and lenders who send business their way. …CONTINUED

Some critics say that because consumers often don’t shop around for title insurance, they may unwittingly pay more when they agree to use the company recommended by their Realtor or lender.

In proposing stepped-up enforcement of the limits on joint ventures, the California Department of Insurance said the state’s title insurers and underwritten title companies stood to lose up to $732 million a year in profits.

Regulators said they had little power to enforce the existing limits on joint ventures because the law leaves key terms undefined and doesn’t spell out in detail the records companies must maintain.

New regulations proposed last summer would have instituted more stringent reporting requirements to better allow regulators to assess how much business is channeled through joint ventures (see story).

Regulators would have been granted new enforcement powers, including the ability to conduct examinations for compliance, fine companies that violate the rules, and suspend or revoke their licenses. The new regulations would also have required that title insurers and underwriters disclose joint ventures to consumers in their advertising and Web sites.

The Department of Insurance on April 10 issued a notice that it was dropping its proposal to enforce limits on the amount of business title insurers can conduct through joint ventures.

"Once (SB 133) was passed, it gave us another way to tackle the same problems," said Darrel Ng, a department spokesman.

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