Multiple homebuilders involved in scheme
March 4, 2005
The Associated Press
DENVER -- Sixteen homebuilders across the nation guaranteed business to a large title insurance company in exchange for kickbacks, a Colorado insurance regulator said in an interview.
The builders' names were disclosed to the state by First American Title Insurance Co. in Santa Ana, Calif., Erin Toll, the Colorado deputy insurance division commissioner, told The Denver Post in a story published Thursday.
Last week, the company agreed to pay $24 million refunds stemming from the alleged kickbacks in the five states where it made deals with builders. It admitted no wrongdoing.
The scheme has launched investigations in 15 other states.
Lenders require title insurance to guarantee there are no other ownership claims on a property they are financing.
The arrangements between title companies and homebuilders began in the 1990s when the title firms sought to lock in lucrative deals with builders, mortgage lenders and real estate brokers. In exchange, title insurers would refund part of the premium to builders, lenders and brokers. Recipients of the kickbacks created reinsurance companies that would purportedly share risks with the title companies - but they were shams because they never paid a claim, state officials say.
A spokeswoman for Los Angeles-based KB Homes, Kate Mullhern, did not immediately return a call for comment Thursday. KB is one of the nation's largest homebuilders.
In a Nov. 30 letter to the Colorado Division of Insurance released Wednesday, First American's vice president and attorney James Dufficy said there "was and is no financial necessity" for the company to share risk with the builders, brokers and lenders through the reinsurance companies.
Toll said the scheme also amounted to a discount on title insurance that was unavailable to other insurance buyers, including "average people selling or refinancing a property."
Max Johnson, vice president and general counsel for homebuilder J.F. Shea Co. Inc., said the company believed the payment scheme was "perfectly legal."
Other large builders on the list include Beazer Homes USA Inc., MDC Holdings Inc., Engle Homes, John Laing Homes, Pulte Homes Inc. and Ryland Group Inc.
The other companies disclosed to state regulators are: Artistic Homes of Albuquerque, N.M.; Citation Homes, Irvine, Calif.; Fulton Homes, Tempe, Ariz.; Maracay Homes, Scottsdale, Ariz.; Meritage Homes, Dallas; Orleans Homebuilders, Bensalem, Pa.; Warmington Homes, Costa Mesa, Calif.; William Lyon Homes, Newport Beach, Calif.
Copyright Associated Press, 2005