ESCROW SUIT FILED BY STATE.
In a historic move, California Attorney General Bill Lockyer has sued the state's title insurance and escrow industries, alleging that for nearly 30 years they misappropriated hundreds of millions of dollars in fees from property buyers.
The suit claims money that should have been returned to buyers of residential and commercial property once sales were complete was kept by the companies.
Fines against insurance and escrow companies and restitution of an undetermined amount of money to California residents involved in real estate transactions since 1970 are being sought.
Lockyer filed the suit Wednesday in Sacramento County Superior Court and planned to announce it at a press conference Monday. The Daily News obtained a copy of the suit Friday.
Representatives of the title and escrow businesses named in the suit could not be reached for comment on Friday.
The filing, made on behalf of the office of the state controller, insurance commissioner and people of California, asks that the suit be given class-action status for the millions of real estate transactions that could be involved.
``We think potentially every homeowner could be owed funds,'' said Byron Tucker, the controller's spokesman.
The suit alleges that some title and escrow companies:
Hold or held unclaimed escrow funds rather than turning the money over to the state.
Charged California home buyers and other escrow customers fees for services that were not provided.
Earned interest from financial institutions on customer funds held in escrow accounts but then failed to transfer the interest to customer accounts.
The action is being taken against an industry that has largely been overlooked by regulators but is an essential part of all real estate transactions.
Escrow companies serve as repositories for money that changes hands while a sale is being completed and title companies make sure the property being sold is in fact owned by the seller and not encumbered by any liens or judgments.
Companies found to have violated state law could be fined up to $5,000 for each real estate transaction, an amount that could total in the hundreds of millions of dollars.
Officials at both the Attorney General's Office and the Controller's Office said it is too soon to speculate on how much money might be owed to consumers.
Nathan Barankin, a spokesman for Lockyer, said this is the first time regulators have taken a close look at the title and escrow industries.
``After you have done 99 percent of the work, you walk into some office and sign a bunch of papers, and you never see them again. Maybe you will get a check back from them,'' he said. ``It's an aspect of the finance experience that is often overlooked and ignored.''
The suit claims that consumers who bought real estate have been dinged in a variety of ways. One example would be escrow and title companies charging a $10 fee for delivering documents when the actual cost was a lot less.
The state Controller's Office is a plaintiff because it administers the state's unclaimed property fund. The state insurance office is named as a plaintiff because it regulates the industry.
Barankin said the suit is historic because it is a ``reverse class-action'' - the defendants are considered the class.
At the end of a real estate sale, the escrow account is supposed to have a zero balance. But the suit claims that escrow companies sometimes did not disburse all of the funds in the account and kept the money instead, collecting interest.
For example, if someone was issued a check drawn on the escrow account but never cashed it, the money remained in the account, the suit said.
It should have been turned over to the state.
Barankin has some advice for consumers now in the process of buying real estate.
``Anyone purchasing or selling their house ought not to be afraid to ask detailed questions of their title and escrow companies assisting them,'' he said.
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|Publication:||Daily News (Los Angeles, CA)|
|Date:||May 22, 1999|
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