Probe of real estate partnerships charges ahead

July 1, 2005

50 title insurers under investigation in Colorado

By Janis Mara
Inman News

An investigation of partnerships among Colorado real estate service providers, known as affiliated business arrangements, is going into high gear next week, as officials plan to probe 50 title insurance companies owned by about 10 individuals.

"We've targeted about 50 companies in Colorado," said Erin Toll, who is the state's deputy insurance commissioner and also co-chair of the National Association of Insurance Commissioners' Title Insurance Working Group.

In March, Toll launched an investigation of affiliated business arrangements, or ABAs, among real estate service providers in her capacity as co-chair of the committee, which is made up of state insurance commissioners.

"There are 50 companies owned and operated by about 10 individuals. That's why we're suspicious. They're all under the same address," Toll said. "It looks really fishy."

However, Toll said she would reserve judgment until she got the answers back to questions she will send to the companies.

Toll said she is composing the interrogatories, or questions, for the companies and hopes to send them out by mid-July. She has hired an additional employee to help with the task. The new employee starts next Tuesday, she said.

"The Commissioner (Colorado Insurance Commissioner David Rivera) was supportive of hiring her. He looks at title insurance as something we need to wrestle with as regulators," said Toll.

Affiliated business arrangements are partnerships between real estate entities such as title insurance companies, mortgage lenders and real estate brokers. The arrangements are legal under the Real Estate Settlement Procedures Act, as long as certain guidelines are followed, such as disclosing the relationships to consumers. RESPA regulates referrals and other practices in the real estate closing process.

Companies engaged in affiliated business partnerships say they go to great lengths to ensure they are properly following regulations.

ABAs have come under increased scrutiny in the wake of investigations into title insurance industry referral practices.

A Broomfield, Colo., title insurance company under investigation for allegedly attempting to give kickbacks for referrals yesterday agreed to pay a penalty of $10,000 to the Colorado Division of Insurance.

"While we don't believe our actual practices violated any laws…we now know that parts of our internal marketing have been vague and confusing. Therefore, we have agreed to a settlement," said Mark Marone, one of the owners of Horizon Title, which does business as American Liberty Title, of the settlement.

Colorado's insurance division is investigating real estate title insurers for alleged kickbacks. The investigation set off a national probe of title insurance companies in several other states. In the alleged schemes, title insurers agreed to give about half of the premium on title insurance policies to captive reinsurance companies created by the other conspirators. The parent companies of those captives would in turn refer business to the title insurer.

In the Colorado probe, First American agreed to refund about $24 million to consumers nationwide without admitting liability or wrongdoing.

Recently, Toll began investigating ABAs for possible similar misdeeds.

Several years ago, the U.S. Department of Housing and Urban Development, which polices RESPA, began allowing title insurance companies, private mortgage insurance companies and others to form affiliated business arrangements.

In a typical arrangement, a real estate brokerage will set up a joint venture with a mortgage lender, for example. The partnership typically provides an in-house, one-stop shopping experience for the home buyer or seller, offering brokerage, lending, and even closing services under one roof.

Copyright 2005 Inman News

Contact ALTA at 202-296-3671 or