Sunday, August 3, 2008

Law tries to limit ties between agents and financial service providers

Real estate agents are clearly the most influential people in every real estate transaction, and their power is not reserved for buyers and sellers. It extends to all professionals involved.

That position of influence becomes magnified in a slower housing market. Everybody is desperate for deals. And, while real estate agents typically offer beneficial referrals, consumers should always remember that they have a choice when picking the various players in the home-buying process -- appraisal, credit report, title report, escrow company, mortgage company, etc. These choices often start with the selection of a title company in the standard purchase and sale agreement. This may seem like a "who cares" decision, but the competition is fierce.

How much do title companies want to be the company of choice in your purchase and sale agreement, commonly known as an earnest-money agreement? A few years ago a title insurance company offered to furnish a real estate brokers' office if all of the agents in that office wrote in the title insurance company's name in the appropriate spot in the earnest-money agreement. Another company offered a broker the use of billboards in public places for carrying the company's name atop preprinted earnest-money agreements. A third company offered all-expenses-paid fishing trips.

As a result, Washington state passed a law in an attempt to curtail gifts to people who have considerable control over the selection of people involved in a real estate transaction. The total value of allowable annual gifts to "producers" was raised from $12.50 to $25, eight years ago -- probably to keep pace with the bump in price of Mariners bleacher tickets.

The intent of the regulation is to safeguard a choice for consumers. Consumers have a right to choose escrow and title companies and to know why lenders prefer certain appraisers and credit companies. And all reps -- agents, loan, escrow, title -- should choose services in the best interest of their customers and not themselves.

"I don't think the abuses are as rampant as they used to be," said Joe DiPaola, real estate attorney, broker and former in-house litigation counsel for Coldwell Banker. "But it's impossible to monitor everything that's going on. Everyone accuses the other guy, but there really are no white hats out there."

Obviously, competent representatives will ship their business to the company that can get the job done. It's a tough, competitive and highly lucrative business that often continues to snowball. Real estate brokers say third-party providers constantly are offering goodies while the providers contend that they will quickly be dropped if they don't continually offer incentives.

Last year, the Washington State Insurance Commissioner's office investigated 12 title companies in King, Snohomish and Pierce counties. Its report found "all the major players in the greater Seattle title insurance market were routinely breaking state laws that limit and restrict the use of incentives and giveaways to steer business."

One company spent $11,000 on tickets and expenses at two Seattle Sonics basketball games, investigators said. One agent spent $6,000 for cocktails during the 18-month period under investigation, and another company picked up a single restaurant tab for more than $3,300.

A more glaring example of how bold third-party providers can be in capturing the business of productive real estate agents occurred in California. The California Department of Insurance uncovered numerous instances of suspected illegal rebates by Southland Title Corp. and its subsidiaries, Southland Title of Orange County and Southland Title of San Diego.

The investigation found fraudulent and/or fabricated invoices and expense reports in excess of $47,000; providing food, beverages and entertainment in excess of $174,000; providing gifts and gift certificates in excess of $62,000; and providing business support services in excess of $218,000, all to benefit real estate agents and brokers. And -- get this -- the firm was fined $1.5 million for similar violations just two years earlier.

A few years ago, when residential real estate was the only shining light in our economy, I received a call from a national title insurance company asking about advertising rates for my nationally syndicated radio show.

Before I could refer the call to an account executive, the title representative said, "We don't have much money left in the budget because our main target is Realtors and not consumers."

Consumers still have a choice, even though third-party providers continue to jockey for the agents' attention. But attractive enticements to real estate agents in western Washington could slow this year due. Who really covets a Mariner ticket this year? And, the Sonics have left town.

Contact Tom Kelly at www. tomkelly.com

Financial Title closes its 57 offices

Financial Title of Citrus Heights has closed all 57 of its California offices, including some in the Bay Area. But a state official said its customers will continue to have their titles processed by the company's insurer and shouldn't be greatly inconvenienced.

First Title and its insurer - First American Title Insurance - notified the California Department of Insurance of the closings Wednesday morning, according to the agency's spokesman, Darrel Ng.

He said he wasn't able to comment in detail about the reasons for the closings, but said it stemmed from financial considerations and not any enforcement action by the department.

"With the lower volume of housing sales, it's part of the normal business cycle for there to be a reduction in the number of companies needed to service that," he said.

Ng said state officials have been sent to Financial Title offices to ensure that all title transactions will continue to be processed appropriately by First American Title Insurance. He added that Financial Title's customers may have to fill out some additional forms and could experience some delays, but shouldn't experience any major problems.

Officials at Financial Title's headquarters and several Bay Area locations did not return calls from the Mercury News seeking comment.

Ng said Financial Title is the second title company he is aware of to close its offices in recent months. In December, Alliance Title of Campbell shut nearly 200 branches after it unexpectedly went out of business. Contact Steve Johnson at sjohnson@mercurynews.com or (408) 920-5043.