Minnesota's Liberty Title was fined $45,000 for allegedly providing "numerous things of value" to a licensed real estate salesperson in exchange for settlement service referrals. Last year the Commerce Department fined Title Smart for allegedly engaging in another kickback scheme and they were fined a similar amount (click here).
The Liberty Title case is significant in the sheer number of infractions (11) and dollars allegedly spent by Liberty Title on this one licensee. What is shocking is that any one of the infractions could have resulted in a serious licensing violation. To see eleven infractions in just one case is over the top and should set off the alarms for regulators all over the country. We believe the DOC was using this case as an example to demonstrate what Liberty was doing with many of their other customers. We have seen evidence of Liberty sponsored events that involved over 300 of their customers (see attached). Plus, this isn’t Liberty Title’s first run in with the Minnesota DOC (we found 3 others – click here to search DOC site and see below).
Although the DOC applied a percentage of business referred analysis to this case, we don’t think they needed to. Providing things of value to a licensee who was in a position to send them referrals was probably enough. The fact that this particular licensee apparently increased their referrals to Liberty after receiving these things of value is disturbing. Realtors in Minnesota are fiduciaries and it becomes predatory if their advice to clients is influenced by bribes.
This action is important because title companies provide key services that ensure the integrity of the transaction and consumers rely heavily upon the title company selection advice that they receive from their Realtors or loan officers. Consumers are particularly vulnerable because they do not understand what title companies do, how much they charge and why they are important. Therefore, it is so important that the advice that they receive from their agents and loan officers is free of inappropriate influences that could result in bad service, overpaying and even title claims.
Title companies investigate and examine title and make important title and closing decisions. It is extremely important that their work is completed impartially and not influenced in any way by financial relationships with Realtors, loan officers, attorneys, or builders. Federal law on kickbacks is extremely strict and clear and has no minimum tolerances. RESPA (“Real Estate Settlement Procedures Act”) prohibits the giving and accepting of “any fee, kickback or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.” That means that a title company shouldn’t even buy a Realtor a cup of coffee.
Unfortunately, the problem with kickbacks is severe throughout the country and consumers should be on the lookout and avoid all kinds of cozy relationships. Consumers should also be aware that the Realtor lobby was successful in carving out a huge exception to the anti-kickback provisions for affiliated title companies. While it may now be legal for title companies to affiliate with real estate brokers, lenders and builders, we believe that they are still bad for consumers. At the very least such relationships raise all kinds of conflicts of interests that should concern consumers. Do you really want a broker with a 5 figure commission riding on the deal closing influencing the decision making process of the title company?
Our advice to consumers is to google their state with “independent title company” or “compare (insert state) title companies” and decide for themselves who they feel most comfortable closing. Not only might they avoid conflicts, they might find themselves saving some money too.
Links to Liberty Title's Enforcement Action (click here)