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More sham Title Insurance businesses shut down

February 19, 2008

More sham Title Insurance businesses shut down

For Immediate Release: February 19, 2008 
Consumers paying too much for title insurance to support kickbacks and illegal referrals

(St. Paul, MN) - The Minnesota Department of Commerce announced today it has taken action against another kickback scheme in which a title insurance company set up sham affiliated businesses with real estate agents, mortgage originators and developers in order to get around state and federal laws prohibiting direct payments for referrals. The Department revoked the insurance producer licenses from six title companies and fined Premier Title Insurance Agency $175,000 for participating in the kickback scheme.
According to the consent order, Premier Title Insurance allegedly created and controlled sham affiliated businesses and paid kickbacks or other things of value to its referral partners for the referral of title insurance business and real estate closings.

The Department shut down six sham affiliated business by revoking their title insurance licenses including 1st Title, St Louis Park, Timberland Title, Arden Hills, Royal Title, Minneapolis, St. Cloud Title & Abstract, St Cloud and Foundation Title, Brooklyn Center. The final company, Desert Sun Title, did not have an address or any referral partners.

Last year, the Department fined First American Title Insurance Company of Santa Ana, California, $500,000 shut down 35 of their sham affiliated businesses.

"Today's action continues our efforts to immediately end these sham business arrangements," said Glenn Wilson, Commissioner of the Minnesota Department of Commerce. "In these cases, Minnesota consumers pay too much for title insurance in order to support these illegal kickbacks, and most of the time they don't even know it is happening."

While it is against federal and state laws to directly compensate someone for a referral for real estate settlement services, the law does allow "affiliated business arrangements."  HUD rules require the affiliated business to provide "bona fide settlement services," not simply a referral.

The department continues to work in cooperation with the U.S. Department of Housing and Urban Development (HUD) on these title insurance cases.

Other recent enforcement actions by the Department of Commerce related to the title insurance industry:

  • In April 2007 the Department fined First American Title Insurance Company $500,000 and ordered them to close down 35 sham affiliated businesses. The Department is also seeking enforcement actions and fines against the hundreds of referral partners involved in the First American affiliated businesses.

  • The Department of Commerce recently imposed a $500,000 civil penalty against Dale Dodge, owner of Verity Title and Abstract of Bloomington, MN, for allegedly misappropriating funds owed to its customers so Dodge could support an extravagant lifestyle. To date, the Department of Commerce has been able to identify a total of $2.4 million in outstanding claims against Verity Title. The company has filed for bankruptcy protection.

  • Gibraltar Title Agency of Edina signed a consent order agreeing to close down their affiliated businesses including Clear Title, Star Title, AM Title, and Sound Title. They also agreed to reimburse customers a total of $100,000 and pay a $10,000 civil penalty to the State of Minnesota.

  • American Residential Mortgage of Maplewood signed a consent order agreeing to a $5,000 civil penalty. The Department alleged that American Residential Mortgage failed to disclose their affiliated business arrangement with Titles Plus.

  • In September 2005, the Department of Commerce entered into a consent agreement with Powerhouse Title, LLC of Lino Lakes, requiring them to cease and desist from selling title insurance without a license and pay a $100,000 civil penalty to the state. Powerhouse was alleged to have sold title insurance without a license and accepted commissions from Chicago Title Insurance Company in violation of Minnesota law. They also failed to properly disclose their affiliated business relationships, also a violation of Minnesota law and the Real Estate Settlement Procedures Act (RESPA).