Title insurance: You pay, others party

Why does title insurance cost so much in California?

Blame Elton John, Paul McCartney and Gwen Stefani. And lingerie.

Title insurance would be significantly cheaper, consumer advocates say, if the industry didn’t spend so much money wooing and rewarding real estate agents, loan officers and builders who bring them customers.

Title insurers have a long history of plying these real estate intermediaries with cash and gifts, including football, baseball and concert tickets, catered meetings and events, vacations, cruises, cigars, wine, rounds of golf, gift cards, electronics and even, yes, ladies undergarments.

Giving money or anything of value in exchange for referrals in a real estate transaction is illegal, but millions of dollars in government penalties have done little to discourage the behavior in the $16-billion-a-year title insurance industry. Washington state investigators who probed illegal incentives and inducements there were stunned to find that the practices continued unabated even after title companies were aware they were under scrutiny.

“Some of the major offenders view the law as little more than a nuisance,” the investigators concluded.

In California, title insurers have found creative ways to reward those who bring them business. Consider:

In 2007, Santa Ana-based First American Title Insurance Co. was ordered to pay a $10 million fine after the California Department of Insurance turned up a host of illegal gifts and payments to real estate agencies, builders and lenders.

Regulators said First American spent over $41,000 in 2005 on such gifts as college and pro football games, chartered fishing trips, riverboat dinner cruises, Del Mar racetrack trips, baseball tickets, soccer tickets, musicals, comedy club tickets, Teen Choice Award tickets, and concert tickets to Gwen Stefani, U2, Elton John, Velvet Revolver, the Eagles, and Paul McCartney.

First American also paid $113,000 for food and beverages for real estate intermediaries’ grand openings, open houses, Christmas parties, birthday parties, broker caravans, cocktail parties, Halloween parties, Monday night football parties, broker of the year ceremonies and a chocolate fountain for a Re/Max Grand Opening. Other gifts included chartered bus trips to casinos and racetracks, amusement park and department store gift certificates, and computer monitors..

First American also paid $106,000 in cash to Frontier Homes from 2003 to 2006 for bringing in home-buying customers, the state found.

In 2006, Orange Coast Title was ordered to pay $800,000 in fines and penalties related to a variety of illegal rebates and inducements.

Investigators said the Santa Ana company spent $82,000 in 1999 and 2000 on such gifts as DVD players, radios, TVs, cups, table cloths, table decorations, birthday cards, birthday gifts, wedding gifts, baby gifts, retirement gifts, Christmas gifts, barbecues and lingerie. It gave gift certificates for massages, spa treatments, and facial treatments, the state found.

The company also spent $44,000 giving away trips to Mexico, Hawaii, Napa, Carmel, Las Vegas, Legoland, Disneyland, Knott’s Berry Farm, Magic Mountain, Anaheim Pond, San Diego, Point Loma, Indian Wells Country Club, Del Mar Meadows, Orange County Performing Arts Center and Dana Wharf.

It also paid for Christmas parties, ice cream socials, bird houses, forest service permits, wedding decorations, photo albums, film, film processing, champagne glasses, floral arrangements, candy, tree decorations, wine, trophies, and disposable cameras, the Department of Insurance found.

From 2004 to 2007, California’s four largest title insurers were ordered to pay a total of $39 million in penalties and refunds to consumers after state investigations accused them of using sham “reinsurance” arrangements to funnel millions of dollars to realty agencies, builders and lenders who brought in title insurance customers.

The four firms – First American Title Insurance Co., Fidelity National Financial Inc., LandAmerica Financial Group and Stewart Title Guaranty Co. – were giving real estate agents, builders and lending firms as much as half of the consumer’s premium purportedly to share the title insurance risk.

But investigators found that such intermediaries never paid a single penny to cover insurance claims; all claims were covered by the title insurers. State investigators concluded that the arrangements were simply conduits for kickbacks.