State Will Bar All Title Kickbacks

The state Department of Insurance, rejecting part of a compromise reached two months ago with the title industry, is expected to issue new rules today that prohibit insurers from paying any financial incentives to real estate brokers and agents.

The agency, in an effort to stop rampant kickbacks paid to gain more business, specifically outlawed a year-old exemption that had allowed title companies to advertise jointly with real estate brokers and agents.

“We’ve seen so many abuses of joint advertising--so many that were well documented--that we just decided to get rid of it altogether,” said Mark Lowder, deputy insurance commissioner for enforcement.

In a bulletin being sent today to the industry, the department reiterates its warning of a year ago that it will enforce rules prohibiting illegal rebates that have curtailed competition and increased costs to consumers in recent years.

Such abuses as under-the-table payoffs, car and computer payments, and closed-shop arrangements between brokers and title companies became widespread in recent years as too many title carriers and real estate agents chased too few deals.

Title companies and the independent printers whose businesses were hurt under the joint advertising rules hailed the department’s decision. But some executives questioned whether the rebates will really end.

“Unless they do something to enforce it, it’s not going to do any good,” said one title executive.

To help enforce the rules, the state agency expects to receive $840,000 over three years from the industry’s trade group, the California Land Title Assn., to hire two investigators and a support staff dedicated to eradicating the abuses. The payment needs legislative approval.

Title company executives and real estate agents have previously described the various unlawful arrangements as “out of control” and “a mess.” Insurance Commissioner Chuck Quackenbush has called the problems “ingrained and widespread.”

Quid pro quo business arrangements violate both state and federal law.

Under a federal law known as RESPA, the Real Estate Settlement Procedures Act, no one may receive or charge “any fee, kickback or thing of value” for referring business in mortgage transactions. Violators face a $10,000 fine or a year in jail, but industry experts say the law is rarely enforced.

Two months ago, the industry proposed a self-policing structure and a clearer policy on the right to advertise jointly with real estate companies and others. The agency tentatively agreed, but said it would police the industry itself.

Under that agreement, which was to be unveiled in early November, agents would have had to pay their share of the costs and title companies would have had to keep separate accounts of the printing jobs.

“I like what they’re saying. It’s a step in the right direction,” said Frank Verrill, who runs Real Estate Image Inc., a Santa Ana print shop that had lost business to the free services that title companies were providing.

John L. Marconi, chairman of Orange Coast Title Insurance Co. in Tustin, said the industry supports the latest language.

“Because of concerns over monitoring what could be printed and what couldn’t, we agreed with the idea of halting it all,” said Marconi, who, as president of the industry’s trade group, headed industry negotiations on the rebate issue.