D.C. Attorney General takes action against another title firm over alleged kickbacks
District of Columbia Attorney General Brian Schwalb is back at it. On Thursday, his office announced a settlement with Universal Title over allegedly engaging in kickbacks with real estate agents through joint ventures in the Washington, D.C., area.
But similarly to the four firms that Schwalb’s office took action against in August, the case did not involve a violation of the Real Estate Settlement Procedures Act (RESPA).
Rather, the civil charges were brought under the D.C. code. Section 31-5031.15 states that the insured “shall not give or receive, directly or indirectly, any consideration for the referral of title insurance business or escrow or other service provided by a title insurer.” It makes no exceptions for joint ventures of affiliated businesses and the AG’s office found these companies to be in violation of local law.
In a press release, Schwalb’s office said an investigation found that Universal offered real estate agents discounted ownership interests and lucrative profit sharing in entities created for the purpose of incentivizing the agents to make business referrals to Universal. This is in violation of D.C.’s Consumer Protection Procedures Act (CPPA), the AG said.
This behavior allegedly restricted homebuyers from shopping for the best price and service when purchasing title insurance and escrow services, and it negatively impacted other title companies in the area that did not engage in similar behavior.
Through its investigation, the office of the attorney general claims that real estate agents who were part of joint ventures and affiliated businesses with Universal Title “aggressively steered their homebuying clients to the spin-offs for title insurance,” thereby boosting Universal’s profits and padding the agents’ income.
“My office is committed to ending illegal kickback schemes in the title insurance industry,” Schwalb said in a statement. “Universal’s secretive conduct prevented District residents from making fully informed decisions about how to spend their hard-earned money when making one of the most significant investments they’ll ever make — buying a home. Universal’s business plan violated core free market principles — limiting customers’ choices and putting law-abiding competitors at a disadvantage.”
In a statement, Universal said that the AG’s allegations that the company engaged in kickbacks and that its affiliated businesses steered customers are untrue.
“Investors in the Universal Title affiliated operation did so at rates at or above market. In fact, the investing partners collectively raised $235,000 in an initial round of capitalization for a minority share of 25% ownership,“ the statement read.
“The OAG’s allegations that receiving a distribution of profits from a legitimate business are in violation of the law run counter to the legislative intent and subsequent interpretation by the D.C. Department of Insurance, Securities and Banking (DISB).”
Additionally, Universal notes that almost one-third of its investors never referred a single title or closing order to the operation, and that the capture rate of the affiliated business was 13%.
As part of the settlement, Universal has agreed to pay the district $500,000, part of which will be used to pay restitution to impacted consumers. In addition, Universal has also agreed to end the practice of giving real estate agents consideration for the referral of title insurance business. It will either cease its title insurance operations in D.C. or divest real estate agents from their ownership interests in the spin-off companies.
“The OAG has cast a very large net, but its allegations have been applied to a categorically different set of facts and circumstances at Universal Title,“ the company’s statement read. “We emphatically deny any illegal activity, but the prohibitive costs and time considerations that come with defending ourselves have driven us to settle.”