Four title insurance companies based in the Washington area have agreed to pay $3.29 million to settle claims that they paid illegal kickbacks to real estate agents in exchange for referrals, D.C. Attorney General Brian Schwalb announced Thursday.
By Aaron Gregg
Schwalb (D) described the kickbacks as part of a “widespread” scheme to limit consumers’ options and hurt law-abiding competitors.
“These four companies violated the most fundamental principles of a free and fair marketplace: they hid information from consumers, limited their choices, and hurt other businesses that play by the rules,” Schwalb said in a statement.
Three of the companies, Allied Title & Escrow, Modern Settlements and KVS Title, issued statements saying they had done nothing wrong but settled to avoid costly litigation.
Allied said that its fees are considerably lower than those of many other title companies and that it has never received a D.C. consumer complaint. “This was not a ‘scheme’ for referrals, as customers were always informed that they could choose any title company they wanted,” Allied said in a statement.
Union Settlements did not respond to a Washington Post request for comment.
Title insurance is required by most lenders offering mortgages, paid as an upfront fee that ranges from a few hundred to several thousand dollars, depending on the sale price. It’s meant to protect both mortgage lenders and home buyers from fraud or disputes involving the ownership of the home. For example, if someone buys a home and then receives a notice about a previous owner’s unpaid mortgage, they could file a title insurance claim to cover the legal costs of resolving the dispute.
The settlements come amid a broader debate over real estate closing costs — which can add up to tens of thousands of dollars when buying a home — at a time of acute concern over housing affordability.
Some policymakers have questioned whether title insurance is necessary in all cases. In March, the Biden administration announced a pilot program that would allow buyers to waive title insurance on certain refinancing deals, citing an independent analysis that found these insurers typically pay out 3 to 5 percent of premiums in claims, compared with more than 70 percent for other types of insurance.
Title insurers in 2022 paid $600 million in claims on $21 billion in premiums, according to the American Land Title Association. But title insurers have much higher expenses than other types of coverage, said the trade group, which cited a study conducted by the National Association of Insurance Commissioners that found that 94.6 percent of title insurance premiums go to expenses, compared with 25.7 percent for property and casualty insurers.
Many title insurance claims that are filed can be traced to “issues that cannot be discovered and resolved before a title insurance policy is issued — such as fraud, forgery, undisclosed heirs and errors in the public record,” the American Land Title Association said in an email to The Post.
It’s common for real estate agents to recommend title companies to their clients, but D.C. law forbids the title companies to provide “consideration” for referrals.
Schwalb accused the four title companies of paying agents to aggressively steer business their way, impeding home buyers’ ability to shop for the best price or service. In some cases, the title companies allegedly gave agents investment deals in joint-venture shell companies, paying them a share of the profits from the home buyers they referred.
The alleged scheme has affected more than 2,000 homes in D.C. since 2019, according to the attorney general’s office.
One of the companies, Allied, held yacht parties for real estate agents on the Chesapeake Bay, which served as “rewards for referrals,” Schwalb said.
Allied denied that the trips constituted a reward for referrals, saying they were two-to-three-hour trips around the Potomac at a cost of about $100 per person. “Hardly a ‘lavish yacht party,’” the company said.
The company described its joint ventures with real estate agents as “affiliated business arrangements” that it says were legal under D.C. and federal law and are common across the country. The company pointed to a section of the D.C. Department of Insurance, Securities and Banking’s website that says that in some instances, affiliated business arrangements may exist between agents and title companies.
The company said that its joint ventures have always followed the letter and spirit of D.C. law, including laws prohibiting “kickbacks” or “referral fees,” and that it is surprised by the attorney general’s “new position” on the matter.
“These were hard-working people going into business together,” Allied said. “At the end of the year, if there were profits to share, those were shared in accordance with each person’s share in the business, just as losses would be shared.”
Title companies paying agents for referrals is a practice that has occurred for decades, said Doug Miller, an attorney and former title company executive who is now executive director of Consumer Advocates in American Real Estate.
He recommends that home buyers insist on an independent title company that isn’t affiliated with their agent.
“Agents are supposed to be representing their clients’ best interests,” Miller said. “When you’re an agent and you steer business into your own title company, it’s called self-dealing.”
