Four title companies doing business in D.C. are set to pay over $3 million in penalties for operating an illegal kickback scheme, the Office of the Attorney General announced Thursday.
Title insurance is familiar to anyone who owns a home or is currently buying one. It's an important part of the process that ensures the home bought actually belongs to the buyer.
The four title companies – Allied Title & Escrow, KVS Title, Modern Settlements and Union Settlements – face $3.29 million total in penalties.
D.C. Attorney General Brian Schwalb told News4 the title companies broke the law and cost District homebuyers money.
"It is illegal, reprehensible to be squeezing more profits out of people by virtue of violating the law," Schwalb said.
The scheme DC officials described
The title companies offered real estate agents “exclusive, lucrative, and discounted investment opportunities in either the companies themselves or in shell entities” in exchange for client referrals, the attorney general’s office said in a statement.
The D.C. attorney general says it is common for a real estate agent to suggest a title insurance company, but it is illegal for the agent to receive any compensation for doing so.
"Whether it's cash, whether it's a fancy yacht trip, whether it's in distribution or a dividend in a joint venture that's established to funnel fees," Schwalb said, "all of that is illegal."
In addition to profits from referrals, Allied Title & Escrow threw multiple parties on yachts in the Chesapeake Bay for real estate agents, the office said. The parties were “rewards for referrals and intended to incentivize the agents’ continued loyalty and future referrals,” authorities said.
The most clearly illegal version of a kickback scheme is one where a title company directly pays a real estate agent money for referring a client to a title company. Instead of that "front door" version of illegal activity, Schwalb said, the four title companies tried to take "the back door."
"They tried to go through the back door with this surreptitious scheme of creating a joint venture or an entity, and giving the agents discounted interests in those entities, and then passing the money through the entities as if they were distributions or dividends," Schwalb said.
The schemes had negative effects for homebuyers in a city where closing on a home is already expensive, Schwalb said. Since real estate agents involved were pointing their clients to certain title companies, it limited those clients' ability to shop around for the best price.
"We want home buyers to be able to trust that the referrals that they're getting from their agents are not contaminated with an undisclosed conflict of interest," Schwalb said.
The penalties
The $3.29 million in penalties is the total the title company will pay. Here's the breakdown, under the terms of the agreement:
- Allied will pay $1.9 million to D.C.
- KVS will pay $1 million to D.C.
- Union will pay $325,000 to D.C.
- Modern will pay $65,000 to D.C.
The attorney general's office said at least $2 million of the settlement will go to homeowners who may have lost money because of the schemes.
A claims process will be made publicly available on the attorney general's website for anyone who used one of the four title companies to close on a home.
All four companies agreed to stop giving real estate agents rewards for referring clients, and to either "divest real estate agents from their ownership interests in the companies or cease the companies' title insurance operations in the District," the office of the attorney general said in a statement.
The office is "keeping an eye" on the real estate agents involved in the scheme, Schwalb said, but the settlement announced Thursday is only with the title companies.
The title companies' responses
News4 reached out to each of the title companies involved in the settlement for comment.
A spokesperson for KSV Title said: "KVS Title strongly disagrees that its joint ventures operated improperly or harmed consumers, and denied any wrongdoing in its agreement with the Office of the Attorney General," the statement reads. "KVS Title is proud of the work its joint ventures performed for consumers, but ultimately decided it was in the best interests of the company to settle these claims and avoid costly and protracted litigation."
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A spokesperson for Modern Settlements said: "We do not agree with the allegations made by the Attorney General," the statement reads. "Modern Settlements has always been and continues to be committed to playing by the rules and providing consumers with an exceptional experience at competitive prices. We made a business decision to pay DC $65,000 rather than go through the drawn out process of a more extensive legal battle."
The other two title companies, Allied Title & Escrow and Union Settlements, have not responded to a request for comment as of this writing. News4 will update you here if they do.
