More than 82,000 California households are due title insurance refunds averaging more than $300 each in a $37 million settlement between the California Department of Insurance (CDI) and title insurance companies in a kick back scheme involving a host of real estate sales offices, builders and mortgage lenders.

Along with a CDI record in rebating penalties -- $12.5 million -- the nine companies, members of three insurance groups -- will pay refunds to consumers totaling $25.3 million, according to the CDI settlement.

Controlling 75 percent of the state's title insurance market, First American Title Insurance Co. and the companies of LandAmerica Financial Corp. and Fidelity National Financial Inc. were accused of paying $25.4 million in illegal kickbacks to various lenders, builders and realtors in exchange for the referral of title insurance business.

Earlier this year, after Colorado and other states opened cases against title insurance companies, CDI filed administrative charges against the nine companies alleging that they paid, nearly half of the premium they collected from consumers to lenders, builders and real estate sales people in return for the referral of business.

CDI said the acts involved "captive reinsurance" firms that were essentially shell corporations with no offices, no employees, and no purpose other than to funnel the illegal rebates to the parent companies.

California Insurance Commissioner John Garamendi also charged real estate sales businesses, lenders and builders with playing along by routinely sending customers to the title insurance company promising the biggest kickback.

Earlier this year, Garamendi signed an order fining San Diego-based Stewart Title of California, Inc. $750,000 and ordering it to pay $160,000 in costs for alleged illegal rebating activity discovered during a 30-month investigation.

As in past cases against title insurers, the companies in the more recent settlement denied wrong doing, insisted they weren't exploiting loopholes and blamed their woes on misunderstood and misinterpreted regulations, over-zealous regulatory enforcement and even uninformed consumers.

They also claimed monies rebated to companies were legitimate costs to cover risk those companies shared with the title insurers.

CDI wasn't buying it.

"These kickbacks are illegal," insisted Garamendi.

"Today's settlement puts an end to these kickbacks. We found violations of law and are punishing the offenders to deter such conduct in the future and, more importantly, to secure refunds for consumers," he added.

In past cases, despite denying wrong doing, the title insurance industry has been swift to pony up fines and rebates and to institute policy reversals in response to investigations about questionable practices.

This case was no exception, and after yet another settlement during decades of investigative scrutiny, the industry's reputation is at stake.

Garamendi's office charged in this case, while the stiff fines and rebates get title companies' attention, the frequent infractions and settlements are an indication the hefty fees amount to little more than the cost of doing business in the title insurance industry.

Title companies have agreed this year to several multi-million dollar settlements in other states and in less than three months after the California charges, the companies agreed to financial settlements and to accept a cease and desist order ending the practice.

The companies also agreed to work with CDI on future rate-reductions and improved consumer-information.

First American Title has promised to automatically send customers a rebate. Procedures for rebates from the other companies have yet to be determined.

If you believe you are due a rebate, call CDI at 800-927-HELP (4357) or the branch manager of the title insurance company where you closed your loan.

Published: July 22, 2005

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A journalist for 35-years, Broderick Perkins parlayed an old-school daily newspaper career into a digital news service offering editorial content and consulting services. Perkins' San Jose, CA-based DeadlineNews Group includes the flagship news site, DeadlineNews.Com, offering real estate, personal finance and consumer journalism, and a backshop, the Deadline Newsroom.