DC Title Insurers Pay $3.29M to Settle Illegal Kickback Claims

Four title insurance companies in the Washington area have reached a $3.29 million settlement over allegations of illegal kickbacks to real estate agents for referrals. The agreement, announced by Brian Schwalb, D.C. Attorney General, aims to halt this practice and provide restitution to affected consumers.

Allied Title & Escrow, KVS Title, Modern Settlements, and Union Settlements agreed to the settlement without admitting liability. The companies will immediately cease the alleged kickbacks, with up to $1.75 million allocated for consumer restitution.

Schwalb described the scheme as "widespread," stating it limited consumer choices and harmed law-abiding competitors. He emphasized that these actions violated fundamental principles of a free and fair marketplace.

Title insurance, which originated in the United States in the 1870s, is typically required by mortgage lenders. It protects both lenders and buyers from potential ownership disputes or fraud. The cost varies from hundreds to thousands of dollars, depending on the property's sale price.

The settlement occurs amid broader discussions about real estate closing costs and housing affordability. In March 2024, the Biden administration introduced a pilot program allowing buyers to waive title insurance on certain refinancing deals. This decision was based on an analysis showing that title insurers typically pay out only 3-5% of premiums in claims, significantly lower than other insurance types.

While it's common for real estate agents to recommend title companies, D.C. law prohibits title companies from providing "consideration" for referrals. The attorney general accused the four companies of paying agents to steer business their way, impeding buyers' ability to shop for the best deals. In some cases, agents allegedly received investment opportunities in joint-venture shell companies.

The scheme reportedly affected over 2,000 home transactions in D.C. since 2019. One company, Allied, allegedly hosted yacht parties on the Chesapeake Bay as "rewards for referrals."

Doug Miller, an attorney and former title company executive, noted that this practice has persisted for decades. He advises home buyers to insist on independent title companies not affiliated with their agents.

"Agents are supposed to be representing their clients' best interests. When you're an agent and you steer business into your own title company, it's called self-dealing."

It's worth noting that title insurance is primarily a North American product, less common in other countries. The industry generates over $15 billion in annual revenue in the U.S., with an average policy cost of around $1,000. Most claims arise from errors in public records or undiscovered liens.

As the real estate industry evolves, some states have explored alternatives to traditional title insurance, such as warranty of title programs. However, for now, title insurance remains a crucial component of most real estate transactions in the United States.