The state is investigating whether nine Colorado real estate brokerages required title companies to pay up to $1 million each for referrals from their agents.
The Colorado Division of Real Estate on Monday sent subpoenas via certified mail to the brokerages, as well as to a California company.
The agents received incentives from their companies in exchange for referring their clients to the title companies that make payments, said Erin Toll, director of the Division of Real Estate.
“These types of payments to real estate settlement providers are bad for consumers because they artificially inflate the price of title insurance,” Toll said. “I believe this is one of the reasons that title insurance rates have not decreased even though title searches are nearly 100 percent electronically performed.”
Title insurance, which typically costs home sellers between $500 and $1,000, protects lenders and owners against losses from property-ownership disputes.
Toll said the alleged kickback scheme comes under the guise of “marketing agreements.”
“They’re saying: You can have exclusive rights to all of our work if you pay me money and we call it marketing,” she said.
In her previous position as the state’s deputy insurance commissioner, Toll gained national attention when she launched a broad-reaching investigation of kickback arrangements in the title-insurance industry.
“This is a different form of the same thing,” Toll said. “It’s illegal to give remuneration in any form for referral of business tied to a federally related loan, which most mortgages are. It’s insidious. It’s everywhere.”
Feds also probed referrals
The current investigation comes more than two years after Toll prompted the federal government to mount an aggressive campaign to stamp out illegal referral fees that were in violation of the Real Estate Settlement Procedures Act.
The U.S. Housing and Urban Development Department settled at least a dozen kickback cases in 2005.
Some of the state’s best-known real estate firms are among those being investigated. They are Re/Max International Inc. in Greenwood Village; Slifer Smith & Frampton in Avon; Fuller Towne & Country Properties in Greenwood Village; Coldwell Banker Residential Brokerage in Denver; Keller Williams Real Estate LLC in Littleton; Keller Williams Executives Realty in Highlands Ranch; Re/Max Properties Inc. in Colorado Springs; McGinnis GMAC Real Estate in Colorado Springs; and Home Real Estate in Centennial. The California company is First American Residential Group Inc., a Santa Ana title insurance company.
Many of the brokerages said Thursday that they had not received a subpoena.
Heather Parness, broker of record for Fuller, and Brad Smith, owner and employing broker of Home Real Estate, said they do not have marketing agreements with any real estate settlement service providers.
Brokerage: Tight, clean ship
Joe Clement of Re/Max Properties Inc. in Colorado Springs said he has an agreement with Wells Fargo for mortgage business. He leases office space to North American Title and Security Title but said he does not have agreements with either company.
“We run a tight, clean ship,” Clement said. “I like to stay out of jail. It’s tough enough out there.”
Julie Bergsten, vice president of Slifer Smith & Frampton, declined to comment.
Shaun White of Re/Max International said the company handles franchising, not real estate transactions.
“We’ll have to get our hands on the subpoena and see what we have to say about it,” he said.
The remaining brokerages did not return phone calls Thursday.
Jerry Spaeth, president of First Integrity Title in Denver, said he has not been asked for money in exchange for business.
“If it is happening, it would explain a lot of the loyalty we run into,” he said. “Generally it’s hard to get Realtors to switch. They tend to be very loyal, more so than mortgage brokers and mortgage lenders. The title companies in town seem to have a very strong hold on some of the larger real estate brokerages.”
The Division of Real Estate wants the brokerages to provide the marketing agreements they have with all real estate settlement service providers; agreements where they give something of value to a provider or the provider is giving them something of value; information on how much business was given to a provider; and details on compensation paid.
Since taking over the Division of Real Estate in 2006, Toll also has launched investigations into appraisers inflating the values of conservation easements and mortgage brokers committing mortgage fraud.
Margaret Jackson: 303-954-1473 or mjackson@denverpost.com
