The industry newsletter Real Estate Intelligence is reporting the states of California and Utah have fined First American Title Company $2.6 million for giving unlawful rebates to real estate agents and real estate office employees as inducements for referring title and escrow business.

Insiders say the fines and settlements are just the tip of the iceberg and both states are now conducting major investigations into their title industries. Real estate brokers reportedly are included in the investigations because of allegations they have solicited the kickbacks.

Under the terms of the California settlement, First American has agreed to pay a $2.5 million fine and to stop engaging in unlawful rebate activities. In Utah the fine was $100,000.

California Insurance Commissioner Chuck Quackenbush Quackenbush said the settlement included the toughest sanctions levied to date in the department's ongoing investigation of the title industry.

Also, First American's Los Angeles County title operation was prohibited from participating in any marketing activities and accepting any new orders for a one-day period. The company also agreed that its Los Angeles residential sales force would not market residential title services for a period of five business days.

According to the Insurance Commissioner, "First American offered inducements or illegal kickbacks to individuals in exchange for business referrals. These inducements came in various forms, including trips to Las Vegas, ski trips in Utah, and tickets to concerts and sporting events."

Similar to most states, the California and Utah insurance code prohibits title companies and employees from offering any form of consideration to persons to induce them to send them business. Both states also prohibit real estate brokers from soliciting such payments.

"Such inducements, or kickbacks, are prohibited so that title companies do not discriminate in their charges to customers," Quackenbush said. "This prohibition also ensures that the interests of consumers are the primary concern of a consumer's real estate agent who might otherwise be tempted by the rebate or kickback to place the interests of the consumer as secondary."

First American has agreed to cease the following activities:

• Paying for escrow coordinators or marketing representatives in the offices of real estate licensees, and payment of rent in real estate offices;
• Providing printing services to real estate licensees
• Providing computer hardware or non-proprietary software, as well as computer support, to real estate licensees
• Making gifts to real estate licensees, as well as providing food and beverages at open house events for real estate licensees
• Providing funding for special events held by real estate licensees, such as office open houses and grand openings, sales retreats, telemarketing nights, Christmas and holiday parties, awards meetings, banquets and office parties
• Paying for special events of its own, in violation of prescribed limitations on the amount of such entertainment and the circumstances where such entertainment is appropriate
• Paying for various forms of business support to real estate licensees
• Paying for, on behalf of real estate licensees, training on subjects unrelated to the business of title insurance
• Constructing and falsifying records in the Los Angeles office to conceal the payment of unlawful consideration.

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Published: November 8, 1999

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