Despite Fine, Insurers Likely to Keep Giving Kickbacks.

The title insurance industry has a dirty little secret: There are those in the business who routinely give kickbacks -- usually in the form of gifts -- to real estate agents in exchange for referrals.

A $2.5 million fine leveled last month at First American Title Co. for just such practices was by far the largest against a title company -- but few think expect it to change the way business is done.

In the case of First American, the kickbacks took the form of trips to Las Vegas, ski trips to Utah and tickets to concerts and sporting events. The company also paid for real estate agents' marketing materials and refreshments at open houses, according to the state Department of Insurance.

"This is one of the most egregious cases," Deputy Commissioner Dana Spurrier said of First American. "You'd think title companies would clean up their act, but they're not doing it, so the investigations, enforcement actions and fines continue."

The Insurance Department has cracked down on the industry for unlawful rebates several times in recent years. Earlier this year, Chicago Title was fined $235,000 and last year Commonwealth Land Title Co. was hit with a $120,000 fine.

In a stiffly competitive industry, some title companies see giving various kinds of inducements to real estate agents or brokers as a way to give themselves an edge. And many agents have come to expect them.

"Most title companies have sales reps, and they make calls on brokers' offices and take them to lunch and figure out what they need," said Scott Turner, a real estate attorney at Cox, Castle & Nicholson LLP.

The problem, says Insurance Commissioner Chuck Quackenbush, is that real estate agents may be tempted to refer business to the title company that gives the biggest kickbacks, not the one that has the cheapest rates. It is the consumer who buys title insurance to protect themselves against liens or unrecorded claims on a piece of property.

Because it's difficult for regulators to police everywhere at once, they generally only get involved after they receive complaints. It's not consumers, however, but competing title companies who complain to the insurance commissioner when "things get out of control," Turner said -- meaning the gifts are getting so lavish that it's hard for smaller players to compete.

First American officials declined comment on the fine, referring to a written statement issued at the time of the department's announcement. It says the company worked "very closely with the Department of Insurance to reach an expeditious resolution to this matter."

It also said First American has taken corrective measures to ensure the "questionable marketing practices" don't recur, including compliance officer programs, educational programs for managers and expansion of internal auditing.

"I think it will make everyone rein in a little and send a flare up that you have to watch what you're doing, but it's not going to end the practice. That industry is no different than any other. If you want business, you have to do a little elbow-rubbing and back scratching," said Robert Camerota, president of the Southern California Mortgage Bankers Association. "First American happened to be the biggest and they got called to the carpet."

In fact, some companies are continuing to operate as if nothing had happened, says one industry veteran.

"I bet you all sorts of in-house meetings were held when (the fine on First American) was announced, and everyone decided to cool it," Turner said. "It was a big fine, so it will probably slow everyone up for awhile, but so long as brokers and developers ask and so long as there's competitive pressure, it will happen again."

While the practice of giving gifts for referrals is widespread, First American's activities were considered more flagrant than most by industry insiders.

"It's always been known they are the worst offenders," said one title-industry veteran. But the person added that such practices are "part of doing business. It goes on."

While not admitting any wrongdoing, First American agreed to stop engaging in a long list of unlawful rebate activities. The company also agreed to stop falsifying records in the L.A. office to conceal unlawful payments. The L.A. office was prohibited from marketing activities and accepting new orders for a day, and its residential sales force could not market residential title services for five business days.

Managers at the office also have been quietly transferred elsewhere. Tom Kelley, who was president in the L.A. office, is now at the Santa Ana headquarters.

The Los Angeles office of First American, which is located in Glendale, is the biggest title insurer in L.A. County, with $11.5 billion worth of mortgages insured last year.

The names of more than 100 agents in L.A., Orange and San Diego counties who were implicated in the First American investigation were submitted to the Department of Real Estate, which licenses and regulates agents.

One title-industry veteran said the kickbacks will only stop if regulators crack down on real estate agents.

"It won't be until the Department of Real Estate publicly tars and feathers these people that brokers will stop asking (for gifts)," the veteran said.